Smart- or strategic-beta indices are rapidly gaining traction in the exchange traded fund industry as investors turn to alternative indexing methodologies that employ actively managed investment styles in a passive and relatively cheap fund wrapper.

On the upcoming annual ETF Virtual Summit, an online conference experience hosted by ETF Trends and RIA Database on January 21, financial advisors will hear from industry experts on benchmark construction, the advantages of smart beta indexes and what we should expect in 2015.

More are increasingly investing in alternative index-based ETFs that try to boost returns or manage market risk as opposed to traditional beta-index funds. There are now 428 U.S.-listed enhanced ETF strategies that do not follow the traditional market-capitalization weighted methodology with $209.5 billion in assets under management, according to XTF data.

“Low volatility, high dividend, and fundamentally-weighted ETFs are poised to see the greatest growth over the next three years as two-thirds indicate they are likely to use these products,” according to a research paper entitled “The Evolution of Smart Beta ETFs” released by Cogent Research and PowerShares. [Bright Future for Smart Beta ETFs]

WisdomTree has been a prolific purveyor of dividend-weighted index ETFs. For instance, one of its first ETFs, the WisdomTree LargeCap Dividend Fund (NYSEArca: DLN), which has $2.3 billion in assets under management and began trading in June 2006, weights holdings by projected dividends to be paid out over the next year, so companies with the highest estimated cash payout are given the largest weighting.

Fueling the growth in smart-beta ETFs, institutional investors, including large money managers, endowments and pensions, are also taking a look at the investment options. Due to their factor-based styles, these smart-beta ETFs tend to generate outperformance, come with lower fees and diminish volatility. However, institutional players point to some drawbacks, including underperformance due to market timing, increased time spent on due diligence, lack of long-term track records and difficulty in comparing performance to traditional benchmarks. [Smart-Beta ETFs Are Attracting Heavy-Weight Investors]