Over the last several months, a number of actively-managed ETFs have been launched. These investment vehicles are essentially a hybrid of traditional mutual funds and ETFs, providing many of the benefits that have boosted the ETF industry (lower fees, greater transparency and flexibility, etc.), while implementing an active trading strategy in an attempt to outperform a market benchmark. While truly actively-managed ETFs (i.e., funds that permit managers discretion in trading) are a relatively new innovation, actively-managed ETFs have technically been around for some time, pioneered by PowerShares, which launched several funds in 2008.
Not Quite Active, Not Quite Passive
PowerShares' actively-managed ETFs are unlike traditional ETFs in that they do not attempt to track any type of benchmark. Rather, the composition of these funds is generally determined by a two-step process: