“As more traditional mutual-fund managers seek to enter the exchange-traded fund space, one ETF firm is moving to convert an established mutual fund into an actively managed ETF. If San Francisco-based Grail Advisors LLC effort is successful, it could help pave the way for other such conversions,” Daisy Maxey Reports From The WSJ.

Grail is now in talks with two traditional investment firms about converting a fund they now manage. It should be able to reveal which firms in 60 to 90 days, it says. For now, Chief Executive William Thomas calls them simply “well-known investment management firms with good records.”

Maxey goes on to say “Grail has seen “a tremendous amount of interest from investment firms that see this as a way to position themselves” in a crowded fund market, Thomas said. The company isn’t saying if the conversion will involve a closed-end or open-ended fund. No open-ended fund has yet made such a transformation, though a few closed-end funds have.”

Either way, success by Grail would be significant, said Tom Lydon, president of Global Trends Investments and founder of ETFTrends.com. “Grail is going to seek out good managers, good brands that haven’t been involved in the space before, and they’re going to facilitate these offerings,” he said. “They’ve set themselves apart as being a company that can work with big managers and show them the benefits of bringing their management expertise to the ETF world.”

“Grail recently added two bond funds to its own lineup of actively managed ETFs, bringing its total to seven with $25 million in assets. Lydon said that many fund companies now realize ETFs pose real competition and are looking to create actively managed models similar to those they’ve created in the traditional fund space,” Maxey Reports.

John Gabriel, an ETF analyst with Morningstar Inc., noted that active ETFs really have not gained a lot of traction with investors. “That’s because part of the lure of active management is the personality behind the fund,” he said. Investors also look for a track record before investing in such funds–and few ETFs have been around for long enough, he said. If Grail can successfully convert a mutual fund with a track record into an ETF, others could follow suit, Gabriel said.

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