Smart or strategic beta exchange traded funds have garnered plenty of criticism, mostly due to the verbiage assigned to these funds, but data make clear that smart beta has plenty of supporters as well. That support comes, in large part, from institutional investors.

The second annual study titled The Evolution of Smart Beta ETFs, conducted by Invesco’s (NYSE: IVZ) PowerShares unit, the fourth-largest U.S. ETF issuer, and Market Strategies International, shows that use of smart beta ETFs by professional investors continues climbing. Institutional investors, including public and private pensions, endowments and registered investment advisors (RIAs), are increasingly favoring the alternative weighting methodologies made available by smart beta ETFs.

“Overall, smart beta ETFs accounted for 17% of US net ETF inflows in 2014, despite representing less than 11% of total assets. Today there are more than 350 smart beta ETFs available in the U.S. comprising over $230 billion in AUM, up from just 212 products and $64.8 billion in 2010,” according to the PowerShares study. [Smart Beta ETFs Keep Gaining Traction]

Low volatility, dividend and fundamentally-weighted ETFs are among the key drivers of asset growth for smart beta ETFs. Over the past year, the top asset-gathering PowerShares ETFs are the PowerShares FTSE RAFI US 1000 Portfolio (NYSEArca: PRF) and the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV).

PRF, which tracks a Research Affiliates index that selects stocks based on book value, cash flow, sales and dividends, is one of the most venerable names among smart beta ETFs and now has almost $4.6 billion in assets after coming to market in December 2005. SPLV has needed less than four years to accumulate $5.1 billion in assets and is now the largest low volatility ETF on the market. [Low Volatility ETFs Shine Again]

Sixty-four percent of institutional usage of smart beta ETFs is currently concentrated to dividend funds, a number that is expected to rise to 67% over the next three years, according to PowerShares. Over the same period, institutional usage of fundamentally weighted ETFs is forecast to rise to 68% from 61% while professional adoption of low volatility is expected to surge to 71% from 57% today.

PowerShares and Market Strategies International find that 60% of institutional investors are now familiar with strategic beta ETFs, up from 54% a year ago. A third of those investors say they are currently using smart beta products while institutions plan to boost their smart beta usage over the next three years more than they plan to increase use of traditional cap-weighted ETFs.

“The survey results also show that secondary objectives for using smart beta ETFs include managing performance, accessing specific markets/sectors, portfolio completion, and the ability to make tactical adjustments to the asset allocation strategy,” according to the PowerShares study.

Although smart beta is a relatively new concept in the world of fixed income ETFs, PowerShares has blazed a trail in that area as well. For example, the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) has added nearly $465 million in new assets over the past year. PCY, the second-largest U.S.-listed emerging markets bond ETF, tracks the DB Emerging Market USD Liquid Balanced Index. That is a proprietary index whereas most emerging markets bond ETFs are weighted by how much supply an issuer sends to market. [Advantages of EM Bond ETFs]

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