Despite the misgivings of some observers, strategic- or smart-beta exchange traded funds that weight holdings based on specific characteristics or factors have quickly attracted the attention of the investment world.

In a recent FTSE Russell survey of U.S. retail financial advisors, 68% of respondents polled say they have utilized a smart-beta product.

However, education about smart beta remains an important point. For instance, FTSE Russell found that defining smart beta and what is classified as smart beta is a point of confusion even among financial advisors.

About 35% of polled advisors reported having used a smart beta product. However, after being prompted by specific smart beta product names, over two-thirds of advisors identified themselves as smart-beta users. Only 18% of respondents say they are “very familiar” with smart-beta.

“Lack of knowledge is one of the top reasons advisors cite for not using smart beta products,” according to FTSE Russell.

The lack of familiarity suggests that some advisors may be open to smart-beta strategies if the products were better defined. Smart beta strategies are investments that use alternative index construction rules, similar to actively managed styles, as opposed to traditional beta or market capitalization based index methodologies.

Many advisors also view smart beta products similarly to the way they view active products, especially as a means to hedge a portfolio in down markets, control volatility and increase alpha.

“Significant numbers of advisors are using the term ‘active’ to describe
smart beta,” FTSE Russell said.