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By Jeremy Glaser and Ben Johnson, CFA | 10-01-2013 09:00 AM

Key Themes for the 2013 Morningstar ETF Invest Conference

Emerging-markets exposure, actively managed portfolios, and the search for income, particularly with bank-loan funds, all will be hot topics at this year's conference, Oct. 2-4 in Chicago, says Morningstar's Ben Johnson.

Jeremy Glaser: For Morningstar, I am Jeremy Glazer. I am here with Ben Johnson. He is the director of passive fund research. We're going to look at some hot topics from this year's ETF Invest Conference.

Ben, thanks for joining me.

Ben Johnson: Thanks for having me, Jeremy.

Glaser: Let's start with income. Obviously, that's not a problem specific to exchange-traded funds, but it's one that investors have been struggling with for some time in this interest-rate environment. What are you seeing in the ETF space in terms of products trying to address the income problem? What's the best way to use ETFs in this space?

Johnson: You're absolutely right. I think income is front and center in the minds of many, and I think it will be for some time as more and more people move from sort of the accumulation stage of their investment lifecycle to the sort of capital preservation and maintenance and decumulation stage.

Income is paramount, but income is scarce right now because interest rates are so extremely, historically low. In the ETF space what you've seen is product proliferation. People are searching high, low and everywhere in between for income. We've seen products, some of the most successful of which combined an income angle along with the potential to protect against interest rates in the bank-loan space.

We've seen a pair of very successful bank-loan ETFs. PowerShares Senior Loan Portfolio, ticker BKLN, which is PowerShares product that tracks an index of bank loans. More recently, we've seen SPDR Blackstone/GSO Senior Loan ETF, ticker SRLN, which is an actively managed bank loan product that's sponsored by State Street. So those have proved to be exceedingly popular because they combine income, which has been a hot topic, with also protection against the potential for rising rates, which is another very hot topic.

Elsewhere, you've seen continued proliferation in the master limited partnership space. The MLP space, when it comes to the intersection of MLPs and exchange-traded products, has become just a veritable alphabet soup and it's become increasingly complex, increasingly tricky to discern what's what in what might be the best vehicle for investors looking to gain access income streams offered by MLPs via an ETP.

If you're not confused yet, I don't know what else I could do to potentially confuse that scenario. But it's thorny, and it's something that we've been doing a lot of work to help investors untangle not only what are the sources of this income, what types of income are being spun off by some of these funds, and how is it being taxed, but also, what are the risks? And this is the biggest issue, I think, right now is, investors are kind of in some corners holding their noses as they're reaching for yield. And that historically has proved to be a very dangerous way to go about investing and to go about generating income.

If you look into, in particular, corners of the high-yield bond market, it would appear to me that investors are sort of again holding their noses as they go further and further out in their search for yield. There are plenty of products and a lot of complexities, but I think, first and foremost, what we need to revisit is the risk that's being assumed as people go out hunting for income streams.

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