IU: In your presentation this morning you mentioned active ETFs. Could you elaborate on how they work and what's going on with this type of fund?

Fuhr: There has been an effort in the U.S. to engage active fund managers in the ETF market, but up to now, the sticking point has been that they don't want to reveal what they, as stock pickers, are holding. There are two different active ETF models that are being proposed; one by the American Stock Exchange and one by Garry Gastineau, who used to work at the Exchange. The general idea is that I, as an active manager, give my portfolio, on a daily basis, to a black box, which creates a basket of longs and shorts that track my real portfolio closely, but where no one can tear it apart and figure out what I own and what I've just sold. That would be the creation/redemption portfolio, and it would allow a truly active fund to become an ETF. According to some people, this type of portfolio has been given to the SEC on a confidential basis for approval as an ETF, but it's not clear how far this process has gone.

IU: Which of the two models do you think works better?

Fuhr: I haven't signed the confidentiality agreement to see either model in full detail, so I couldn't comment on that.

IU: But whatever happens, it will happen in the U.S. first?

Fuhr: You have to be slightly careful here, because Europe has had funds that trade intraday and on-exchange for a long time, on Euronext, for example. What Europe doesn't have is an indicative NAV-the transparency that the typical ETF has. And they don't have an in-kind creation/redemption process. So it depends on how you define an ETF. That's, incidentally, why Euronext calls its ETFs "trackers": to differentiate them from the funds that have been listed on their Amsterdam exchange for 60 years or so.

IU: Which areas are going to be the most popular in the next phase of ETF product development?

Fuhr: In the Middle East, people have been working hard to bring new products to market, so we will see a number of listings on exchanges in that region later this year. Others are actively involved in finding other asset classes that can be offered in an ETF format-hedge fund replication is an area that comes to mind. Many people are looking at low-cost beta and how to gain exposure to multiple asset classes. As people embrace ETFs, they typically then call up and ask, "Is there an ETF on market X?"

Now that we have 90 or so firms that have launched ETFs, they are all looking at ways of doing something new and different. In the States, people are looking at 130/30 strategies as an ETF, for example. And, as well as new products, there's also more to come in terms of the way people are using ETFs; for example, as underlyings for structured products or as part of funds of funds.

And the range of users of ETFs is continuing to grow. Over the last year I've been everywhere from Latin America to Australia, and I've recently come across ETF users in Kazakhstan, China and Saudi Arabia. It's a big change from when I started in the sector 11 years ago, when it was hard to find anybody who'd buy an ETF.

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