“It’s a whole spectrum of investors that are using these implements for a whole variety of different uses,” Johnson said.

When it comes down to choosing a smart-beta ETF, Johnson advises investors to first look at the costs. Investors should not be paying active-management-priced fees for passive funds.

“It’s important that investors, I think, first and foremost, look at the costs, because what you’re seeing is that there’s this emphasis on ‘innovation’ and ‘differentiation’ that’s being done, in many cases, at investors’ expense,” Johnson added. “It’s used as a justification for relatively higher fees.”

There are currently about 1100 passively managed U.S.-listed ETFs with an average 0.56% expense ratio, and some of the cheapest index-based ETFs have a 0.04% expense ratio, according to XTF data. Meanwhile, the 461 U.S.-listed enhanced ETFs on the market have a slightly higher 0.62% average expense ratio. [Costs, Provider Know-How Matter with Smart-Beta ETFs]

For more information on alternative index-based ETFs, visit our smart beta category.

Max Chen contributed to this article.

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