Over the past several years, exchange-traded funds have enjoyed a tremendous surge in popularity, passing many major milestones as they were embraced by retail and institutional investors alike.

Once comprised solely of “plain vanilla” products tracking well-known equity indexes, the ETF industry has evolved at an incredible pace in recent years, and now offers investors exposure to nearly every corner of the investable market. Along the way, we’ve seen brilliant innovations (such as leveraged ETFs, “intelligent” ETFs, and actively-managed ETFs, just to name a few) and a plethora of new fund launches (at last count, there were 850 ETFs in the ETFdb Database).

Another entrant into the actively managed ETF realm is a few steps closer to reality: Grail Advisors LLC of San Francisco has its application in the comment phase with the SEC.

Grail has been waiting since September of last year for the SEC to approve its request for an exemption, reports John D’antona Jr. for Investment News. CEO William Thomas says he expects the exemption for transparent, actively managed equity ETFs to be granted.

The announcement came with a press release from the Bear Stearns (BSC) website that tracked their stillborn baby, the Bear Stearns Active ETF Trust—their Current Yield Fund (YYY). Announced on March 10, 2008; it ceases operation on October 1, less than six months spent in suspended animation.

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By Murray Coleman

It was probably just a matter of time.

Pacific Investment Management Co., the home of bond fund maven Bill Gross and the world's largest bond fund manager, registered Tuesday for exemptive relief from the Securities and Exchange Commission to enter the exchange-traded funds market.

Open-Ended Funds of ETFs Slow to Grab Hold

The concept of an open-ended "fund of ETFs" has yet to gain any momentum. Could it be that the right time has simply not yet arrived?

Most of these types of funds are less than two years old, and the aggregate of net assets of the group total $251.6 million, less than 1% of all fund assets, reports Richard Widows for The Street.

These are good times for ETF bond investors.  For years the ETF market offered long and intermediate-term bond funds with just a few short-term and no ultrashorts or money market funds.  Within the last few years, however, there has been an awakening in the industry.  Many vendors are now expanding their offerings of short-term holdings. 

The importance of short-term holdings in one's fixed income portfolio is not to be underrated.  For a balanced portfolio, a fairly common allocation would allocate about 1/3 each to: (1) inflation-protected instruments, (2) intermediate-term and (3) short to ultrashort holdings.  Although there is no definitive answer as to how to allocate fixed income, equal weighting among the three I noted is an easy-to-implement strategy.  Of course, opinions vary widely.

Active ETFs Gaining a Tepid Response So Far

After all that talk, actively managed ETFs are so far bringing passiveness from investors now that they're here.

Ian Salisbury for the Wall Street Journal reports that these funds, after years of anticipation and back-and-forth with the Securities and Exchange Commission, haven't gathered assets as quickly as other new ETF launches have in the past.

By Matthew Hougan

How many of the new funds will stick? Let's look at recent history.

In April, 2008, Chance Carson, President of Alpine Strategies, LLC in Colorado, interviewed Mr. Richard Ferri, author of the highly instructional book on ETF investing The ETF Book: All You Need to Know About Exchange Traded Funds, John Wiley & Sons, ©, 2007. One of the many topics covered in the interview was about the development of actively-managed ETFs. Here are some highlights from the interview.

Chance Carson: One of the difficult issues facing actively-managed ETFs is the SEC’s daily disclosure rule. Tell us more about that.

Was the first actively managed ETF a good idea after all? Chuck Jaffe doesn't think so.

The Bear Stearns Current Yield (YYY) debuted on March 25, and it's not going to look any better as the active ETF sector grows, Jaffe says. His problem is not with the fund's troubled namesake, though. He questions whether the fund is going to live up to anyone's expectations.

By Heather Bell

A couple of weeks ago, Bear Stearns (BSC) launched the first actively managed exchange-traded fund, but on Friday Invesco PowerShares became the first ETF provider to launch a family of active ETFs. The four long-awaited PowerShares ETFs are listed on the NYSE Arca exchange.

By Matthew Hougan

Bear Stearns (BSC) Launches First Active ETF – Finally!

On March 25, a day after JPMorgan Chase (JPM) raised its takeover bid for the company, the beleaguered Bear Stearns launched the first active exchange-traded fund.

Brokerage Firms Embrace ETFs

Brokerage firms are putting their arms around ETFs in a big way, even going so far as to build entire portfolios out of them.

By Jim Wiandt

The intrigue around the launch of the Bear Stearns Current Yield fund (YYY) has certainly be interesting to follow.

By Murray Coleman

As tremors continue throughout credit markets, even short-term bond funds and money market funds are becoming suspect as safe havens to stash cash.

• WiMax spreads its wings. Comcast (CMCSA) and Time Warner Cable (TWC), #1 and #2 U.S. cable suppliers, are in talks to fund a WiMax-based wireless carrier that will be run by Sprint Nextel (S) and Clearwire (CLWR), sources say. Cable companies are dying for a wireless foothold to combat the onslaught of phone companies like AT&T (T) and Verizon (VZ) who have entered the pay-TV business and may soon offer quadruple-plays (landline, wireless, web and cable). Sprint and Clearwire are in the midst of raising $3B to rollout WiMax, which Sprint says will cost $5B by 2010. Additional funding for the proposed new venture is like this: Comcast: $1B. Time Warner: $500M. Bright House Networks: $100-200M. Intel (INTC): $1B or more. Google (GOOG): hundreds of millions. Companies helping to fund the JV will receive a stake in the business and wholesale access to the network.
• Deutsche Bank warns. Deutsche Bank (DB) said this morning challenging conditions may prevent it from hitting its 2008 pretax profit target of €8.4B ($12.9B). Its leveraged finance exposure was $55.7B at year-end, and it said it expects further writedowns based on current market conditions. Shares are down 2.65% in Frankfurt.
• Clear Channel's foggy future. The proposed $19B-plus-debt deal to take Clear Channel Communications (CCU) private is on the verge of collapse, sources say, despite CCU's exuberance. Here's the problem: The private-equity buyers (Thomas H. Lee and Bain) have already raised the required $4B and say they're ready to go. But banks (C, MS, DB, CS, RBS and WBC), who agreed to put up another $22B, face losses of $2.7B if the deal closes and their debt is written down by a now common 15%. The private-equity firms will probably try to saddle the banks with the $600M breakup fee.
• $1.3B... $2B... $2.65B! Latest reports say Ford (F) will get a much higher than expected $2.65B from Tata Motors (TTM) for its Land Rover and Jaguar brands. Too bad Ford paid BMW almost $3B for Land Rover in 2000. The sale will supposedly be announced today.
• How to swallow a Bear. Hundreds of JPMorgan (JPM) bankers have moved their offices into Bear Stearns' (BSC) headquarters as the bank pushes to integrate Bear's prime brokerage and global clearing businesses. There is lots of wheeling and dealing to try and pin down Bear's most productive employees, although early reports say JPMorgan's stay-on incentives are falling short of typical deals offered by rival firms. Meanwhile, two pension funds who own stakes in BSC are asking Delaware courts to issue a temporary restraining order against the "grossly inadequate" $10/share deal.
• Whitney prunes Citi. Outspoken Oppenheimer analyst Meredith Whitney thinks Citigroup (C) will lose $0.15/share in 2008, vs. a previous estimate of +$0.75/share. She now thinks Citi will lose $1.15/share in Q1, not $0.28. "This will not be our last reduction in 2008," she adds. "We anticipate further downside to both estimates and stock prices." She also reduced sector-wide earnings estimates by 84%. Citi fell 1.3% in early Europe trading.
• Goldman's first SPAC: Doing it their way. In its very first "blank check" SPAC (special-purpose acquisition company) deal, Goldman (GS) will underwrite the $350M IPO of Liberty Lane Acquisition. Just 7.5% of the firm's equity will go to management (SPACs normally allocate 20%), a move it says increases shareholder value and gives management greater incentive to hunt the killer deal -- which it has two years to do. Some of the founders warrants also carry a higher-than-normal strike price.
• $1T Lockheed contract in jeopardy. The Pentagon is reconsidering whether it's ready to spend up to $1T to buy and maintain 2,458 F-35 Lightening II plane from Lockheed Martin (LMT) in coming decades; the contract was granted in 2001 and is seen as crucial for Lockheed. United Technologies (UTX) makes one of the plane's proposed engines; a second is made by General Electric (GE) and Rolls Royce.
• Final hurrah? Besides collapsing, Bear Stearns (BSC) also rolled out the very first actively managed ETF yesterday. Bear Stearns Current Yield Fund (YYY), which will aim to beat money-market funds by investing in a range of fixed-income products, will eventually be rebranded to reflect its new daddy. PowerShares it set to launch three actively managed equity ETFs in early April, and Vanguard plans to actively manage four fixed-income ETFs based on its mutual funds.
• Fortune finds friend. Fortune Brands (FO) is joining forces with private-equity group Nordic Capital in its bid to acquire Absolut Vodka distiller Vin & Sprit from Sweden, sources say. Fortune will keep Absolut, while Nordic will get Distillers and Wines. Bids for V&S are due tomorrow; there are at least five bidders, and the company is expected to fetch $6-7B.
• Circuit City eyeing sale? NY Post found a March 11 note from Circuit City (CC) advisor Goldman Sachs (GS) that explains Goldman removed its rating and price target from the firm because it is "acting as a financial adviser in connection with a strategic transaction that is fundamental to the reasonable analysis" of its share price. A CC spokesman downplayed the comment, but wouldn't comment on whether it has been approached by potential suitors.
• Home prices plummet. U.S. home prices fell 11.4%, the steepest drop since S&P/Case-Shiller started keeping track 20 years ago. Prices have now fallen for 19 straight months.
• Condo crisis could crush Corus. Corus Bankshares (CORS) has an almost deadly level of exposure to condo lending, the WSJ says, and is likely to face increasing regulatory scrutiny over the coming months as massively undersold projects complete and borrowers start to forfeit. Its cash cushion of $300M might not last for long once things start to unravel, and it doesn't seem to be doing much to brace itself for a storm, the Journal says.
• Vale, Xstrata part ways. Brazilian miner Vale (RIO) is no longer in merger talks with Swiss Xstrata (XSRAF.PK). The two have been in discussions since December. Xstrata rejected Vale's initial bid of $76B; it is said a price of $90B was being tossed around.

Today's Markets

• Asian markets were a mixed bag Wednesday. Nikkei -0.3% to 12,707. Hang Seng +0.68% to 22,617. Shanghai -0.63% to 3,607. BSE -0.81% to 16,087.
• In Europe, markets are weaker at midday. FTSE -0.45% to 5,664. CAC -0.12% to 4,687. DAX -0.19% to 6,512.
• U.S. futures are down on light volume at 7:10 AM. Dow -0.18% to 12,482. S&P -0.33% to 1,347. Nasdaq -0.18% to 1,822.75.
• Gold futures are up 1.35% to $947.60. Oil is up 1.25% to $102.47.

The race has been won: amid a collapse and a possible buyout, Bear Stearns (BSC) actually found time to launch the first actively managed exchange traded fund [ETF].

The Bear Stearns Current Yield Fund (YYY) began trading today on the American Stock Exchange. The fund is a portfolio of short-term fixed income securities, including U.S. government securities, bank obligations, corporate debt obligations, mortgage-backed and asset-backed securities, municipal obligations, foreign corporate debt obligations, repurchase agreements and reverse repurchase agreements.

By Murray Coleman

A day after J.P. Morgan Chase (JPM) raised its takeover bid, beleaguered Bear Stearns' (BSC) asset management arm moved forward Tuesday by finally launching the first active exchange-traded fund.

By Matthew Hougan

The Bear Stearns Current Yield Fund will not list Tuesday, and the race for the first actively managed ETF moves on.

By Matthew Hougan

The race to launch the first actively managed ETF is really a race to the starting line.