Actively managed exchange-traded funds haven’t attracted assets as quickly as some have expected, but that hasn’t slowed the race to expand ETFs beyond their index-tracking roots.

Most ETFs defined as actively managed are still quantitative and formulaic. Still, the first to qualify as actively managed in the traditional sense — using analysis and known stock pickers — have already come to market, and more are on the way.

ETFs are baskets of securities that trade like individual stocks. Their structures generally offer cost and tax advantages over conventional mutual funds as well as more transparency because they disclose their holdings daily. 

What constitutes an active ETF depends upon whom you ask.

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.Some include quantitative/active funds, which generally expand in some way upon traditional benchmark indexing. Among them are Invesco PowerShares Capital Management LLC’s Dynamic Market portfolios, which seek to track PowerShares’ Dynamic Market Intellidex Index, some of which began trading in 2003, as well as First Trust Advisors LP’s AlphaDEX enhanced index family of quantitative funds, launched in 2007.

There are currently 62 quantitative/active ETFs with $2.67 billion in assets, according to Morningstar.

Last year brought the first active ETFs to rely on managers to choose holdings. It took the industry nearly 10 years to win regulatory approval of them, and only a handful are on the market.

They include Invesco’s Powershares Active Low Duration ETF (trading symbol PLK), a bond ETF, and three Powershares stock ETFs: Active Alpha Multi-Cap Fund (PQZ), Active AlphaQ Fund (PQY) and Active Mega Cap Fund (PMA). All launched in April 2008. They were joined by PowerShares Active U.S. Real Estate Fund (PSR) in November.

The five PowerShares funds now have a total of about $21.1 million in assets.

“We never expected that active ETFs would be the Holy Grail that some people referred to them as,” said Ed McRedmond, senior vice president of portfolio strategies at Invesco PowerShares. Instead, the company expected their introduction to be a “slow, educational” process.

Full Story:  http://online.wsj.com/article/SB124294333425045017.html

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