BOSTON -- If there's any wisdom to the maxim "If it ain't broke, don't fix it," you might not know it from looking at what the exchange-traded fund industry has been up to lately.

ETFs' heritage, now 16 years old, is rooted firmly in index investing. ETFs generally hold a basket of investments that passively track a market index. But unlike mutual funds, ETFs can be traded like a stock during daily trading sessions.

Their no-frills index approach to investing means ETFs charge smaller management expenses than actively managed mutual funds, which pitch the value of professional expertise and the prospect that market-beating performance can offset higher expenses.

That premise has proved a hard sell amid the recent market turmoil, with nearly $283 billion flowing out of stock and bond mutual funds over the nine months ended March 31. Some went to ETFs, which have seen $162 billion flow in during that span, according to Financial Research Corp.

Meanwhile, 15 actively managed ETFs have been launched since April 2008, aiming to stretch the investment product beyond its index strategy comfort zone. Fund companies have recently filed to come to market with a handful of other active ETFs, with many more expected in coming years.

So why are ETF providers messing with success by trying active management? Think evolution: There are now more than 700 index ETFs, ranging from funds mirroring the Standard & Poor's 500 index to higher-risk ETFs offering exposure to a single industry, overseas market or commodity.

So something new that seeks to juice returns by using some degree of investment-screening is a natural outgrowth.

"Actively managed ETFs seem like an obvious avenue to go down to see what kind of traction that they can get," said Loren Fox, an analyst who helps lead ETF research at the New York-based firm Strategic Insight. "We think there is genuine potential there."

Now, a megadeal is expected to accelerate the rollout. New York-based BlackRock Inc. announced plans June 11 to buy the investment unit of Barclays in a $13.5 billion deal that includes the British bank's market-leading ETF business, iShares. Last month, iShares filed with regulators to offer two active ETFs, in hopes of expanding its current share of about half the U.S. ETF market. Its closest ETF rivals are State Street Global Advisors and Vanguard Group.

The first two active ETFs from San Francisco-based iShares could be just the start. BlackRock, which would become the world's largest asset manager with completion of the Barclays deal later this year, is looking to play off its strength in actively managed mutual funds by expanding beyond iShares' more than 170 index ETFs.

BlackRock will consider active ETF launches "in the broader context of product design, regulatory and marketing considerations," spokesman Brian Beades said.

The active ETFs on the market now include offerings from PowerShares, Wisdom Tree and Grail Advisors. Some invest in baskets of stocks, some in bonds and others are geared toward real estate investment trusts and bets on foreign currency markets.

Actively managed ETFs hold nearly $314 million in assets, a tiny slice of the ETF total of $535 billion. And even the ETF total is dwarfed by mutual funds, which hold about $18 for every dollar in U.S. ETFs.

So far ETFs haven't caught on with individual investors as much as with institutions such as pension funds and foundations. But Mr. Fox, of Strategic Insight, said that could change with the BlackRock deal and growth of active ETFs.

"What that could mean for ordinary investors is a much larger range of choices of how they may want to invest in active strategies," he said, "whether it's through mutual funds or ETFs."

As for performance, active ETFs are too new to have a long-term track record. That's why Robert Mann, a computer systems analyst from Grosse Pointe Woods, Mich., won't be adding active ETFs into his portfolio of index-based ETFs anytime soon. The 47-year-old is a member of a small ETF investing club who caught the ETF bug a couple years ago, enticed by their low expenses and ease of trading. He trades them like a stock, unlike mutual fund shares that are priced just once a day -- a disadvantage that has boosted ETFs' appeal amid recent market volatility.

But active ETFs? "It's going to be a while," Mr. Mann said, "before we have enough historical data to show whether they offer any advantage over passive ETFs or not."

There are plenty of other obstacles for active ETFs, and ETFs in general. They've barely made a dent in 401(k)s, in part because plan administrators' back offices haven't adjusted operations to handle the unique way ETFs are bought and sold.

Despite ETFs' complexities, it could be just a matter of time before 401(k)s adapt to include ETFs on their investment menus.

"Retirement and ETF providers have been hard at work to solve the operational issues," said Rob Ivanoff, an analyst with Financial Research Corp.

But keep in mind: Even though ETFs can be traded daily, unlike mutual funds, the risks and benefits are much the same.

First Published: June 21, 2009, 4:00 a.m.