Grail Advisors, based in San Francisco, will forever be known as the company that sold the first actively managed exchange-traded fund, the Grail American Beacon Large Cap Value ETF ( GVT). Its advantages over a mutual fund are clear: The ETF is more flexible, transparent and cheaper.

The ETF uses Brandywine Global Investment Management, Hotchkis and Wiley Capital Management and Metropolitan West Capital Management as sub-advisers. All three are established, successful and well-regarded.

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Each firm has been allocated a third of the fund to manage, and there are no rebalancing plans if one manager outperforms or trails the other two. The sub-advisers are free to buy and sell securities as they see fit.

The fund will buy large companies, with a bias toward value instead of growth, though many growth names, because of the severity of the bear market, now resemble value stocks. Grail American Beacon Large Cap Value ETF has a 15.5% weighting in tech, with larger holdings being IBM ( IBM - Get Report), at 2.6%, and Oracle ( ORCL - Get Report), at 2.1%.

Technology can show up in a value fund because the criteria are vague. They include above-average growth potential in earnings, below-average price-to-earnings ratio, below-average price-to-book ratio and above-average dividend yields. Those criteria come from the prospectus, but there's no mention of defining how to compare P/E ratios, dividends or the like. Should it be against the stock's own history, or other stocks currently, or something else? Actually, vagueness is a plus. If you want to use active management, it doesn't make sense to saddle the people you've hired with a long list of restrictions.

The listing of the Grail American Beacon Large Cap Value ETF is an evolutionary step for actively managed mutual funds. The ETF wrapper, as opposed to the traditional mutual fund, allows for more flexibility in buying or selling shares. With traditional funds, orders are executed once a day after the close of trading, whereas ETFs can be bought or sold at any time.

Another big feature is transparency. Holdings are updated daily on Grail Advisors' Web site with a one-day lag. With mutual funds, there can be a three- to six-month lag. It wouldn't have been shocking to have looked under the hood of value funds two years ago and found a majority to be heavy in large cap financial stocks, which turned out to be the worst segment to own.

A final advantage is that ETFs are cheaper. Expenses for Grail American Beacon Large Cap Value ETF are capped at 0.79% of assets.

Does it make sense to consider this type of fund for a diversified portfolio? The biggest disadvantage is that there's no way to know how the fund would fit into a portfolio in the future.

Six months from now many of the characteristics of the fund could be different. It likely will always be a proxy for large cap value, per its mandate, but the sector makeup could change, the average market cap could be different or the fund could increase or decrease its exposure to American depositary receipts, for just a few examples. With so many variables, it makes incorporating the fund into a portfolio tailored to address future market expectations difficult to do.

At the time of publication, the writer had no positions in the securities mentioned.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.