Following the financial crisis, demand for alternative investing methodologies has grown. Over the past three years, smart beta ETFs made up 21% of U.S. ETF flows and now represent 12% of total ETF assets under management. Year-to-date, smart beta continued attract 37.0% of new asset inflows.

Looking ahead, investment interest does not look like it will abate any time soon as institutional investors are planning to raise their exposure to smart beta ETFs. Over the next year, 64% of surveyed institutional investors are expected to add smart beta ETF exposure while 35% will keep holdings as is.

Among the various types of enhanced ETF strategies, 59% of institutional respondents expect to allocate toward the low-volatility theme, 46% like high dividends, 39% are looking into fundamental weighted index-based ETFs, 39% are interested in the equal weight methodology and 25% targeted high beta strategies.

Institutions cited a number of reasons for smart beta ETF inclusion, including 22% pointing to inclusion, 19% to manage volatility, 15% for exposure to specific assets, 11% to diversification and 10% for better asset risk return, among others.

However, the industry still needs to provide greater education as 31% of surveyed institutional investors cite the lack of familiarity as a reason for not using smart beta ETFs.

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

Max Chen contributed to this article.