Affluent investors who have their money managed by a financial advisor have shown interest in exchange traded funds. However, investors’ limited knowledge of the investment vehicle remains a major hurdle that has kept many from pulling trigger on ETF allocations.

ETFs, like mutual funds, offer investor shares in a pool of stocks, bonds or other assets. However, unlike mutual funds, ETFs are traded throughout the day on a stock exchange, like a stock security, at a market-determined price. More investors are turning to ETFs as a low-cost and tax-efficient tool to gain market exposure.

According to John Hancock, a survey of affluent investors revealed that over half of respondents preferred combining active and passive investment strategies in their portfolios, or the utilizing the rising number of “smart-beta” strategies now available. Additionally, participants also pointed to strong performance, diversification and low cost as key features when selecting their investments.

Smart beta ETFs, which select and weight components based on specific market factors, may help investors generate attractive long-term, risk-adjusted returns. Additionally, smart beta ETFs are relatively cheap compared to active equity funds – there are 504 enhanced index-based ETFs with an average 0.60% expense ratio, according to XTF data. [Understand Smart Beta ETFs]

“ETFs, particularly strategic beta ETFs, have become more widely accepted in recent years, yet our research reveals an opportunity for advisors to better educate investors about their benefits,” Karen McCafferty, head of marketing for John Hancock Investments, said, referring to strategic- or smart-beta investments that follow rules-based index strategies as opposed to market capitalization weights, which are found in traditional beta index-based ETFs.

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