The actively managed exchange traded fund industry is going through a growth spurt, making it more important than ever for investors to understand the differences between active and passive management. Small differences in these funds can have a big impact upon a portfolio.

“The first active ETF products launched in 2008, and at the end of the first quarter 2013, there were 108 active ETFs and exchange traded products listed globally with $17.8 billion in assets from 18 providers, listed on 9 exchanges,” Deborah Fuhr wrote for CNBC. [Active ETF Market Gearing Up]

According to ETFGI figures, record net inflows of $73.4 billion in the first quarter of 2013 totaled all assets in ETFS and ETPs globally to $2.09 trillion. For more perspective, active ETFs and ETPs accounted for about 1% of this.

In the United States alone, there are a total of 1,439 ETFs and ETPs from 53 providers trading on 3 different exchanges. There are about $1.47 trillion assets under management as of March 31, 2013. Of this, there are 60 actively managed ETFs currently trading, with $12.9 billion in total assets under management, accounting for 1% of the U.S. ETP market, according to ETFGI figures. [Where ETFs and Mutual Funds Diverge]

The latest trend in the actively managed ETF business has been for traditional mutual fund providers to file with The Securities and Exchange Commission for launching active ETFs. New strategies within the active ETF sector have cropped up, along with new providers showing interest in this sector. [Active International ETF Sports Impressive Performance]

As more providers try and grab market share of the active ETF business, it has become more important for investors to educate themselves on what defines an active ETF versus a passive fund. Active ETFs do not track an index, the stocks they hold are dictated by a manager. The fact that ETFs are transparent, meaning their holdings are revealed in real time, the possibility of front-running is an ongoing issue. Fund managers are also asking for permission to create active ETFs that hold derivatives, but regulatory hurdles are far from being resolved.

“Two relatively new and successful active ETFs listed in the U.S. by Pimco are the PIMCO Total Return ETF (NYSEArca: BOND) and the PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT), with assets under management of $4.6 billion and $2.8 billion, respectively, at the end of the first quarter. These two ETFs account for 41% of all active ETF/ETP assets in the U.S.,” Fuhr wrote.

Tisha Guerrero contributed to this article.

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.