Robert Bush, Investment Strategist at Deutsche Bank, also saw multi-factor, smart-beta ETFs as a means to generate alpha or enhance returns while smoothing out the ride. Smart-beta ETFs may capture upside in a market rally and limit potential drawdowns during market sell-offs, helping investors enjoy better risk-adjusted returns.

“Smart-beta ETFs offer higher alpha with similar volatility” to traditional beta funds, Bush told ETF Trends.

Financial advisors’ more meticulous research into smart-beta ETFs reflects their growing interest for the investment strategies, especially as alternatives to more costlier actively managed open-end funds.

According to the annual 2016 Trends in Investing Survey conducted by The Journal of Financial Planning and the FPA Research and Practice Institute, 83% of advisors use and/or recommend ETFs to clients as the current “preferred investment vehicle” among 18 available options, compared to just 40% of advisors back when the first survey was conducted in 2006.

Related: Indexers See Further Growth for Smart-Beta ETF Strategies

Due to their passive nature, management fees are at a bare-bones minimum, which has made ETFs relatively more attractive to active mutual funds on a fees basis. ETFs provide daily disclosure on their holdings. Additionally, the funds are traded like a stock and can be easily accessed through a normal brokerage account.

The increased interest among investors, advisors and institutions has also contributed to index providers’ outlook on smart-beta index strategies, with major indexers like MSCI, FTSE Russell and S&P Dow Jones Indices creating more customized indices to be used as benchmarks for ETFs.

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