Exchange-traded funds have become a hot commodity in the past few years, as investors, soured by their mutual fund experience, have become increasingly allured by their low cost, versatility and tax efficiency. At last tally, the combined assets of the nation's ETFs stood at $190.51 billion as of the end of October, according to the Investment Company Institute. That's up from the nearly $151 billion in assets at the end of December 2003.
A fundamental aspect of the ETF is that it tracks the performance of specific market index, either at home or abroad, by holding all the securities contained in the index or a representative cross-section of those securities. While this index-based model has spurred significant growth in the last year, assets still pale in comparison to most other investment vehicles. But what if ETFs were actively managed?