The hottest new trend in exchange traded fund (ETF) investing is active management. As new funds appear in registration every week, many are asking whether these funds make sense for individual investors.

ETFs that center on active management are expected to be the hot trend in 2010. Analysts project that about 100 new funds could launch, adding to the few that are trading on the market today. Elizabeth Trotta for SmartMoney reports that with active ETFs, managers tactically manage a basket of stocks. Critics say that means investors also have to stay alert and closely eye the funds they own. [Hurdles Facing Actively Managed ETFs.]

Proponents say that actively managed ETFs make sense when you consider how mutual funds operate. Active ETFs have all the benefits of an active mutual fund – primarily the expertise of a manager working behind it – without the drawbacks. Mutual funds aren’t transparent, tend to cost more than ETFs and can’t be traded intraday.

Investors are watching and waiting to see if these managers can generate alpha before they hop on board. If the managers working behind these funds can do it, the investors will come.’

There will be no shortage of high-quality products, though. Grail Advisors, PowerShares and PIMCO have all launched quality actively managed ETFs in recent years and more big names are in the pipeline. These includ Hancock, Vanguard, Grail, T. Rowe Price and Legg Mason. With those kinds of names standing behind these products, investors might find them to be an irresistible lure. [Active Management Opportunities.]

For more stories about active management, visit our actively managed ETF category.

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.

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