However, unlike actively managed funds, smart beta ETFs passively track an index, so the smart-beta strategies employ both passive and active characteristics. [Where Smart-Beta ETFs Fall On The Passive/Active Spectrum]
FTSE Russell also found that advisors have been leaning toward dividend and high quality smart beta ETF strategies. About 36% of respondents are using smart beta ETFs that weight companies by historical dividend and 35% of respondents showed interest in the strategy as well. About 27% of respondents are using the high quality investment approach and 40% said they were likely to use the high quality strategy in the future.
Furthermore, among emerging smart beta investment strategies, advisors are showing the most interest in multifactor methodologies, which combine multiple factors like low volatility, quality and value.
For instance, the PowerShares FTSE RAFI US 1000 Portfolio (NYSEArca: PRF), which tracks an FTSE Research Affiliates index, is one of the longest running smart beta ETFs. PRF weights stocks based on fundamental measures, including book value, cash flow, sales and dividends.
Smart beta ETFs also attract a certain group of advisors. Advisors who use smart beta are morel likely to be younger. Additionally, advisors are heavier users of ETFs and alternative investments.
While smart beta ETFs have gained wider attention, the lack of familiarity with the products shows that greater education is still needed to shed light on the new investment strategies if the industry wants to grow.
For more information on smart beta ETFs, visit our smart beta category.
Max Chen contributed to this article.