As the trend toward exchange traded funds (ETFs) becomes increasingly popular, the industry’s attempt at active management is intensifying.

PowerShares broke new ground with an actively managed ETF, and many other providers have since followed. The possibilities for the actively managed ETF to outdo the mutual fund industry are becoming a reality, as the extreme popularity and investor interest in ETFs is on a solid growth path.

Daisy Maxey for The Wall Street Journal reports that Allianz, Claymore and State Street along with Vanguard have all sought permission from the Securities and Exchange Commission (SEC) to provide various actively managed ETFs. BlackRock is seen as a potential player, too, after its purchase of Barclays iShares business. An active ETF is one that has a manager pick stocks or portfolio holdings, rather than a traditional ETF, which tracks an index. It took the industry about a decade to gain approval for these types of funds.

The largest issue for active ETFs is that of disclosure. How can an ETF stock picker build positions and keep market makers in the loop while avoiding front-runners? For now, it hasn’t been too much of an issue because most actively managed ETFs are focused on heavily traded stocks that aren’t as sensitive to price movements copycats can cause.

One approach to the issue has been to pick three managers, that way, the holdings are disclosed, but nobody really knows who owns what, dissuading any copycats. Grail Advisors took this approach with the ETF they launched in May.

It’s clear now that actively managed ETFs are here, that they’re here to stay. Interesting things are going to happen in this segment of the ETF marketplace in the coming months as new products and new strategies come forward. As investors learn more about these vehicles as a performance track record is built and the market recovers, we’ll see increasing interest in them.

For more stories on actively managed ETFs, visit our actively managed cateogry.

Tags: Actively Managed ETFs