CNBC: What are the chances active management is the future growth of the ETF industry?
Kranefuss: ETFs to date provide liquidity and exposure. They let investors get market exposure at a low cost in any quantity for any period of time, long or short. This has driven much of the past. ETFs also provide ubiquitous distribution—i.e., if you list one on an exchange, any investor can get it from any account. It will take a while, but active ETFs will "democratize" the distribution of active strategies. If you have got a good alpha idea, you can put it into an ETF, list it, and any brokerage or custodial account is a potential buyer—sort of like being the iTunes or eBay of alpha.
If someone has an investment idea, it will be relatively easy to put it in an EFT format and have access to a universe of investors looking for an alpha strategy. Active ETFs are very important in the long run as a trend and part of the whole ETF story. Just don't expect any blockbuster funds like an S&P 500.
(Read more: Dividend investing using ETFs)
CNBC: If actively managed ETFs become a major product category, do you think star portfolio managers will prefer the ETF structure to eke out even more of the crucial basis points they need to stay ahead of the index?
Kranefuss: Even in index funds, performance matters. ETFs are performance-based index funds. Individuals are buying the same funds as large institutions, who care about trading costs/spreads and tracking error and tax efficiency. Total cost of ownership matters. If active managers can use the structure to eke out alpha in some way—which may be as simple as reduced trading costs in the fund—they will do it. You build the active funds to the standards of the most demanding customer. Tracking error and enhancement elements are all live-or-die decisions in managing ETFs. The industry gets the benefits as well by reducing trading costs and adding enhanced returns. There is a stronger benefit to do active funds in the ETF format. Everyone gets the same high-quality turnover.