Asset managers are constantly looking for new ways to gather assets for their firms.

New funds and ETF launches are a dime-a-dozen each quarter, but new funds that define a completely new slice of the market or create a new riff on an existing theme are much less common.

Is product innovation now the domain of exchange-traded funds and indexers?

Analysts from Morningstar say a new order in innovation has emerged with ETF shops leading the charge in product innovation, while traditional fund companies are more likely to launch conventional funds.

"ETF issuers historically have been far more willing to lob up interesting and innovative new products than mutual fund firms. It speaks to ETF issuers' likely greater open mindedness toward innovations as well," said Robert Goldsborough, fund analyst at Morningstar.

Indeed, it is a distinct subset of ETF issuers that are launching the most innovative products, generally the smaller players. "ProShares yes, but more than that, firms like First Trust, InvescoPowerShares, Van Eck Global and Global X Funds have really come out with a variety of interesting and innovative products. One just doesn't see that so much from iShares, State StreetGlobal Advisors or Vanguard Group," said Goldsborough.

To be sure, Goldborough noted that i-Shares, State Street, and Vanguard all have come up with some interesting products over the past few years, "but the magnitude of innovation unquestionably is much higher from the smaller players."

Goldsborough sees five themes driving product innovation in the fund marketplace including high dividend/low volatility and income offerings. He says that funds that invest in Master Limited Partnerships are a good way for fund companies to offer income coupled with stability. Barclays' ETN+ Select MLP ETN and Yorkville's High Income MLP ETF are two products launched this year that fit this bucket, according to Goldsborough.

The third product theme Goldsborough identified is the proliferation of funds that invest in short-term debt just outside the range of money market funds. He mentioned Pimco's actively managed Enhanced Short Maturity Strategy Fund (MINT) as one of the leaders in this category. AdvisorShares' Newfleet Multi-Sector Income ETF (MINC), another actively managed short-duration bond ETF that launched last month, also falls in this bucket.

Two other broad themes Goldsborough outlined are funds that invest in high-yield debt (junk bonds) and funds that invest in government business development corporations.

A cursory look at recent fund launches also reveal other innovative ETF and index products from around the industry including the newly launched ProShares Global Listed Private Equity and the anticipated 2013 launches of AdvisorShares' International Bear ETF and Vanguard's Emerging Markets Government Bond Index Fund.

Proshares' Private Equity ETF is touted as the first globally diversified ETF focused on companies that invest primarily in private enterprises. Set to launch later this year is AdvisorShares' International Bear ETF. A filing states the fund will short internationally traded equity securities and have exposure to American Depositary Receipts and fixed-income securities. A spokesperson for the firm declined to comment on the impending fund launch.

Dan Culloton, associate director of fund analysis at Morningstar, said another anticipated product is Vanguard's planned Emerging Markets Government Bond Index Fund, which is set to launch sometime this quarter. Vanguard has been looking at introducing a fund that tracks emerging markets bonds for over a decade. Mutual funds that currently track these bonds have high expense ratios, and Culloton says Vanguard's low-cost entrant to the market could be disruptive.

Not to be completely shut out of the innovation arms race, other mutual fund shops are seeking out new markets and combining familiar elements to offer investors innovative products. For example, Commonweath Funds' Africa Fund (CAFRX), which launched in mid-2012, attempts to capture the value being created on this continent.

Robert Scharar, president and director of FCA Corp., advisor to the Commonwealth Funds, said that Africa is one of the last true untapped markets. But there are challenges for managers that launch funds dedicated to this developing country.

Scharar says managers need to invest the time to understand the moving parts in the African economy. He travels to Africa several times a year to survey local conditions, visiting local stock exchanges and even grocery stores to gain a sense of the economic and political conditions.

"Investing in Africa is a big undertaking, there in not much reliable information on the markets, so you must be willing to go to the source." he said.

Managing downside risk while seeking solid equity returns continues to be a source of inspiration in new products. Los Angeles wealth manager Aspiriant has an entrant in this category with its Aspiriant Risk-Managed Global Equity (RGE) Fund.

The fund seeks to achieve growth through long-term capital appreciation, generate additional income and reduce volatility through covered call writingand protect the value of assets against periods of severe market stress through tail risk management.

"What's unique about this fund is not its components separately, but the combination of all three in a user-friendly, cost-effective vehicle for individual investors," said Jason Thomas, chief investment officer of Aspiriant.

Thomas likens the strategy to choosing items off a restaurant menu, "If you're ordering off the regular menu, you will never get the special."

The fund will be sub-advised by AQR Capital Management, Dimensional Fund Advisors and Parametric Risk Advisor. Thomas says this list will grow. The fund is currently only available to to Aspiriant's investment advisory clients, but Thomas anticipates an institutional share class will be available later this year.

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