Smart beta, rules-based index ETFs have quickly gained in popularity and become a fast-growing segment of the fund industry.

The rising generation of young investors and increased expectations for academically backed rules-based indexing methodologies have helped smart beta ETFs attract billions of dollars.

According to the 2018 ETF Investor Study conducted by Charles Schwab & Co., 41% of ETF investors are invested in smart beta strategies, with millennials a particular penchant for the new investments. Specifically, among the various investor demographics, 67% of millennials invested in smart beta strategies, 49% of generation X held smart beta funds, 13% of boomers and 14% of mature investors.

Looking at the various smart beta factors available, 45% of those who invested invest in or plant to invest in quality, 42% are looking at value, 35% at growth, 34% at fundamental, 32% at dividend and 30% at multi-factor investments.

Smart beta investors want more

Around 68% of ETF investors who are invested in smart beta say they plan to increase investments into smart beta in the year ahead. The younger generation, again, showed greater interest in raising their smart beta exposure, with 72% of millennials anticipating an increase in smart beta investments and 74% of gen X adding more, compared to 23% of boomers and 22% of mature investors.

Schwab found that investors are more likely to see smart beta ETFs complementing their market cap-weighted ETFs instead of replacing their original core holdings.