Smart-beta ETFs are considered a mix of both passive index-based offerings and actively managed styles. Specifically, the enhanced, factor-based, smart-beta ETFs will passively track an underlying index. However, the underlying index implements actively managed strategies, such as focusing on low-volatility, momentum and value, among others.

“Strategic-beta funds are the modern equivalent of the quantitative fund,” Rekenthaler said. “Popular in the 1970s and 1980s, quantitative funds mined databases in the attempt to pick stocks. Strategic-beta funds similarly mine databases, but to select factors – or betas, as they call them.”

Consequently, when talking about strategic- or smart-beta ETFs, Rekenthaler suggests that the strategies may be better suited to be compared to active management as the ETFs cost more than other index funds and try to outperform their traditional beta peers.

For more information on market indices, visit our indexing category.

Max Chen contributed to this article.