Actively Managed ETFs

February 17, 2007

The ETF craze may kick into overdrive now that the SEC is seriously considering allowing actively managed exchange traded funds - to heck with the front running issues.

While ETFs bring in a good chunk of all the new money going into funds these days, ETFs have been based on an index or basket of underlying. Most ordinary mutual funds are actively managed, meaning that fund managers decide which stocks to buy rather than simply investing in whatever is in, say, the S&P500 Index. That could soon change.

Many industry observers have predicted 2007 would be the year the ETF marketplace sees its first truly actively managed products. The earliest ETFs tracked recognizable, plain-vanilla indexes such as the S&P 500.

However, more firms entering the ETF business are launching products on increasingly complex indexes that, arguably, already incorporate elements of active portfolio management. "

One thing is for sure, we'll see ETFs with higher fees once "expert" management comes into play.