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World's First Active ETF to be Launched in Germany

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The seemingly inevitable has come to pass. IndexFunds.com has learned that the world's first actively-managed exchange-traded funds will soon be launched in Germany.

11 new funds are scheduled to begin trading on the Frankfurt exchange's Xetra platform on November 20. The fund manager will be DWS Investment, an arm of Deutsche Bank in Germany. Unfortunately no information about how the funds work logistically was immediately available.

Exchange-traded funds (ETFs) are mutual funds that can be bought and sold like stocks. Until now, all ETFs were based on indexes with known, quantifiable component stocks. U.S. fund managers have been aggressively pursuing efforts to launch actively-managed ETFs. AMEX is hoping to host the first launch of actively-managed ETFs sometime in 2001.

Thus far, logistical and regulatory hurdles have stymied all efforts to launch active ETFs. Of particular concern has been the issue of how disclosure of the underlying stocks would work. While active managers clearly do not want the market to be aware of which stocks they are buying and selling in real time, it is critical for investors to be aware of precisely what the net asset value (NAV) of the underlying stocks is, so that they can trade the ETF shares based on that value.

According to a DWS press release, the 11 funds to be launched initially will consist of broad German, European, Asian, U.S., and global funds, as well as Biotech, Internet, Pharmaceutical, U.S. Technology, New Markets, and Gold funds.

Deutsche Brse's existing exchange-traded funds have seen trading volumes nearly triple from 6.8 million to 18.5 million shares per day since launch seven months ago. For October, ETFs saw volumes of 408 million, about 135% over the previous month's volume and an all-time high.

Volker Potthoff, member of the executive board of Deutsche Brse, feels that the new funds will be a boon to investors, "We think that a diversified portfolio makes a good hedging instrument for investors. With these active funds, there are no front load costs and it is easier for an investor to get out of an investment portfolio."