Investors who are accustomed to exchange traded funds may be beginning to look toward factor based or smart beta strategies that screen for specific characteristics to potentially enhance returns.

“Our clients are using smart beta indexes as tools to help them pursue a wide range of their objectives, notably higher dividend yields, lower volatility, return enhancement and diversification,” Ken O’Keeffe, managing director of global ETFs at FTSE Russell, said in a note. “And our analysis continues to show that combining multiple factors, not just a single factor, in a smart beta index can help market participants see the benefits of diversification across a number of factors which perform differently across different time periods.”

The various market factors have helped investors outperformed traditional beta index ETFs that weight holdings based on market capitalization.

For instance, over 2016, the underlying indices for the SPDR Russell 1000 Low Volatility Focus ETF (NYSEArca: ONEV) rose 16.2%, SPDR Russel 1000 Momentum Focus ETF (NYSEArca: ONEO) gained 12.7% and SPDR Russell 1000 Yield Focus ETF (NYSEArca: ONEY) increased 23.3%, whereas the SPDR Russell 1000 ETF (NYSEArca: ONEK) added 11.1%.

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