The term “smart beta” relates to decomposing drivers, or factors, that propel investment return – such as dividend yield, momentum, quality and size. Indexes can be created out of the specific factors which can then be tracked by ETFs and ETPs, giving investors, so the proponents claim, a cheap way to capture the qualities that push performance. Such investment ideas show how the index-tracking market has become more sophisticated, responding to client demand for more finely tuned sources of return.

There have been 30 consecutive months of net inflows in to smart beta products, ETFGI, an organisation tracking this sector, said last week.

At the end of July there were 1,235 smart beta equity ETFs/ETPs, with 2,241 listings, assets of $659 billion, from 148 providers on 40 exchanges in 32 countries. Year-to-date smart beta equity products have experienced net inflows are at $35.5  billion, less than the $37.6 billion in net inflows at this point last year.

ETFs are typically open-ended, index-based funds, with active ETFs accounting for 1.1 per cent market share. ETPs, on the other hand, are alike ETFs in the way they trade and settle but do not use an open-end fund structure.