"ETFs are good vehicles in general because of the tax-efficiency and transparency," he said.

Regular mutual funds must pass on any capital gains each year to investors, which can trigger a tax bill. With ETFs, investors generally don't pay capital gains taxes until the investment is sold for a profit.

ETFs also trade throughout the day like a stock, so investors know the price of shares when they buy or sell. With a mutual fund, buyers and sellers get the price at the end of the day. And ETFs reveal their holdings daily, rather than every month or so with a regular mutual fund.

But Collins said he's likely to stick with passive ETFs, rather than active.

"From all the research out there, active management has very little impact on performance" and investors have to pay more for it, Collins said.



Baltimore-based money managers T. Rowe Price and Legg Mason Inc. may offer actively managed exchange-traded funds after receiving a thumbs up from regulators.

The Securities and Exchange Commission approved Price's application earlier this month to be allowed to issue active ETFs — the first, and most difficult, regulatory hurdle to entering the market.

Legg received similar approval in mid-November, and now awaits the second step: the green light from the SEC to launch a specific fund.

"I expect them to move fast," said Robert Goldsborough, an ETF analyst with Morningstar Inc. Goldsborough said he would be surprised if this year ended without both Legg and Price launching active ETFs.

ETFs have been around for about two decades and have grown in popularity because they are more transparent and tax- efficient than regular mutual funds. Almost all of them are passive, meaning they mimic a benchmark, such as the S&P 500 index, by investing in similar securities.

Actively managed ETFs, in which a professional money manager has a say in which securities are in the fund, popped up nearly five years ago. The theory is that having a professional hand in the mix can boost returns, although investors will pay a higher fee for the ETF because of this expertise.

The active ETF marketplace remains small. Today, there are 1,445 ETF products with nearly $1.4 trillion in assets, according to Morningstar. Of those, 53 are active ETFs with total assets of $10.5 billion — less than 1 percent of all ETF assets.

Regulatory approval for Price and Legg has been a long time coming. Price initially applied for the SEC's blessing in late 2009; Legg in 2010.

Legg is further along in the regulatory process. The money manager is seeking SEC approval to launch a bond fund called the Legg Mason Western Asset Ultra-Short Duration ETF, according to Legg spokeswoman Maria Rosati. That's expected to come in the first quarter, she said.

Legg so far has only sought approval for that ETF. But in earlier documents filed with the SEC, Legg stated that it might also launch two actively managed equity ETFs.

Price spokesman Brian Lewbart said in an email that the company is not prepared to discuss specific products. The SEC action this month gave Price the approval to offer a variety of active ETFs, when, and if, Price decides to pursue this, he said.

"If we introduce ETFs, our intent would be to offer products that are differentiated from offerings currently in the market and that deliver long-term value to our clients," he wrote.

Other investment companies have received initial regulatory approval to offer active ETFs, but haven't take any action beyond that, analysts said.