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Graham TonksAnalyst Deborah Fuhr has followed ETFs from theirearly days

Deborah Fuhr, partner at ETFGI, talks with WSJ's AriWeinberg about the differences between exchange-traded funds and notes, plus she explains some of theETF products that can help track commodities.

represent less than 1% of assets. If you could consider ETFs based onnon-market-cap-weighted indexes as a form of active management,then it is actually much larger.

WSJ: Focusing on traditional stock picking, do you expect asignificant migration of actively managed mutual funds toactive ETF form?

Ms. Fuhr: No. If we think about an active manager makingconcentrated bets on a limited number of stocks, he won't feelcomfortable with an ETF given the requirements for daily transparency.It would be like your grandmother giving away her secret sauce.

Plus, when you look at how institutions investbased on three-yeartrack records and [using only] funds with over $100 million in assetsyou've got a chicken-and-egg problem given the current size of activeETFs.

Investor Knowledge WSJ: Over the 15 years you have been following ETFs, whathas surprised you?

Ms. Fuhr: I was most surprised in the early days by how many people were holding ETFs with no idea in what they were actually investing. I would talk to institutional investors about SPDRs and QQQ, but they thought they were just holding securities as opposed to actual funds.Surprisingly, that need for education continues today and is actually getting greater.

Many investors now know what ETFs are, but until they decide to useone, they don't ask enough questions to be comfortable.

WSJ: Do individual investors and advisers know how to tradeETFs? Do they hurt themselves in how they do it?

Ms. Fuhr: Most ETFs that individual investors or advisers should beusing are large and liquid, so they can buy them safely without affectingthe market.

But when you start to consider exposures in niche markets, you or your adviser need to be very clear about how much you should be buying and holding and whether your trade itself could affect the market for the ETF and the underlyingsecurities. As a general rule, never trade more than 20% of average daily volume. For an ETF that doesn't trade, youcould be it.

Just because there is this huge toolbox of products, not all of these products are appropriate for all investors. And just because a new one comes to market doesn't mean you should change [your holdings].

WSJ: I'm an ordinary individual investor. What should I know about ETFs that I probably don't?

Ms. Fuhr: Make sure that you know and understand the benchmark that the product is designed to track. Products with similar names can be based on market capitalization, equal weighting or some other indexing methodology that candeliver very different returns than what you expected.

But you should also be careful about non-fund exchange-traded products that weren't originally designed with the retailinvestor in mind and that use structures that don't have diversification requirements and other protectionsfor

example, single-exposure commodity funds, like SPDR Gold or funds that look to get exposure to oil through the futuresmarket. Issuers have moved beyond the fund structure to offer products that imply different risks, different tax

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[treatment], regulatory requirements and performance and costs.

Mr. Weinberg is a writer in New York. Email him at reports@wsj.com .

A version of this article appeared May 7, 2012, on page R4 in some U.S. editions of The Wall Street Journal, with theheadline: Talking About ETFs.