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By Scott Burns | 01-29-2010 04:09 PM

Active ETFs on the Launch Pad

Rick Ferri, founder of Portfolio Solutions and the author of 'The ETF Book,' on the rise of the 'Spindex' and why 2010 will be known as the year of active ETF launches.

Scott Burns: The state of the ETF market. Hi there. I'm Scott Burns, director of ETF research with Morningstar. Joining me today is founder of Portfolio Solutions, Rick Ferri. Rick is also the author of the ETF Book and he has a column that he writes for Forbes Online. Rick, thanks for joining me.

Rick Ferri: Thank you, Scott.

Burns: Well, when we talk about the state of ETF's in 2010, I know there's a couple of themes for you. One was in a column that you recently wrote on Forbes, and you talked about these structured portfolio index notes.

Ferri: Oh, Spindexes.

Burns: Spindexes. [laughs] I got a little chuckle out of that. I won't say I totally bought in with everything. But what were you kind of talking about there with this Spindex comment?

Ferri: Well, we all have what we know and love as an index, which prior to a lot of this product being launched in the last few years, indexes were measurements of benchmarks of the market. It might be the stock market. It might be the bond market. I mean, they were benchmarks to measure how the market is doing and also how your performance is doing in relation to the market.

Burns: They weren't even meant to be invested.

Ferri: Not originally. They were not. No, that's a good point. They were just meant to be benchmarks. Now what has happened over the last few years is that product providers who want to launch more of an actively managed fund, but want to do it under an ETF structure, have to take that active management strategy and turn it into an index first.

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