All is not quiet on the Western front when it comes to the battle between actively managed exchange traded funds (ETFs) and mutual funds.

One clear advantage active ETFs have over mutual funds is cost, report Jaclyne Badal and Leslie Scism for the Wall Street Journal. For example, the expense ratio for the PowerShares line is 0.75%, while Morningstar notes that the average mutual fund expense ratio is 1.34%.

But where mutual funds may display an advantage for the time being is familiarity. After all, name brand and performance over time has long been established within them, while many investors seem to be waiting to see if active ETFs deliver the goods before they jump in.

Active ETFs also face some real competition, as there are some low-cost and tax-efficient mutual funds with solid track records out there. They also face hurdles with the strategies for stock-picking they employ, which are largely untested.

As for taxes, perhaps they’ll gain the edge. In 2007, the estimated taxes paid by taxable mutual fund investors rose 42% from 2006. Funds must distribute their capital gains, but the structure of an ETF allows it to minimize the distributions by handing over stocks to brokers and specialists so no tax bill is triggered. Mutual funds can keep tax efficiency by keeping the portfolio turnover low.

Who’s the winner? Ultimately, investors are going to decide on this one. Having more choice is always good, but many might just continue playing the role of observer before they decide they’d like to step in and give these new breed of ETFs a shot.

The active ETFs currently available are:

  • PowerShares Active Low Duration Fund (PLK)
  • PowerShares Active Mega Cap Fund (PMA)
  • PowerShares Active Alpha Q Fund (PQY)
  • PowerShares Active Alpha Multi-Cap Fund (PQZ)
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB)
  • WisdomTree Dreyfus Indian Rupee Fund (ICN)
  • WisdomTree Dreyfus Brazilian Real Fund (BZF)
  • WisdomTree Dreyfus Euro Fund (EU)
  • Bear Stearns Current Yield (YYY)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.