Canadian financial advisors are calling on ETF providers to expand the range of funds that they offer with exposure to categories such as international and global equities, commodities, international fixed-income and smart beta investment strategies, according to a recent survey from London, England-based index provider FTSE Russell.

FTSE Russell polled 256 financial advisors in the U.S., Canada and the U.K. this past autumn on their perception and usage of ETFs and, in particular, smart beta investment strategies. The results revealed that 37% of Canadian advisors expect to increase their usage of ETFs in the next 12 months — a higher proportion than any other product category.

In comparison, 25% of advisors said they plan to increase their usage of active mutual funds, 22% said they plan to increase usage of separately managed accounts and 17% said they plan to increase usage of passive mutual funds.

When Canadian advisors were asked in which areas they would like to see more ETF choices, 31% said international/global equity ETFs, 30% said smart beta/factor ETFs, 28% said emerging-market equity ETFs, 28% said commodity ETFs and 28% said international fixed income ETFs. Other categories cited included currency hedged, domestic equity, multi-asset and domestic fixed income ETFs, among others.

When asked about the most important factors when selecting an ETF, 44% of Canadian advisors cited cost, 38% cited performance, and 37% cited diversification. Other key factors included tax efficiency, index methodology and liquidity.

When it comes to smart beta, the research suggests that although many advisors are interested in — and using — the investment strategy, there is limited understanding of it. Slightly more than half of Canadian advisors reported that they had used a smart beta index-based strategy, 40% said they have not used one and 6% said they weren’t sure.

“Some people aren’t always sure what we mean by smart beta,” said Rolf Agather, managing director of North American research at FTSE Russell, who presented the results of the survey at a conference in Toronto on Thursday. He defines smart beta broadly as an index strategy that falls somewhere between traditional active and traditional passive management. However, he notes that specific definitions vary, which has created some confusion.

“It still feels like there’s some room to grow in terms of the market for those types of products,” he said.

Among the advisors surveyed who hadn’t used a smart beta strategy, 31% said it was because they didn’t know enough about them, 28% said they didn’t have a long enough track record and 19% said they hadn’t found a manager they trust who offers the strategies. Other reasons included: they don’t feel the strategies are worth the extra fees; it’s not possible to predict whether they will outperform traditional active or traditional passive funds; and they’re not sure how to implement them.

“[Advisors] don’t know enough about them …We need to keep providing information,” says Agather. “Just like any investment product, people need to see an actual live track record on these products.”

Among the advisors surveyed who are using smart beta strategies, the top reasons that advisors said they employed the strategy was to improve diversification, generate income and protect against inflation.

FTSE Russell partnered with market research firm Greenwald & Associates to conduct the research. To be eligible to participate in the study, advisors were required to be working full-time as an advisor or wealth manager, have been an advisor for at least three years, have AUM greater than US$25 million and have at least 50% fee-based annual revenue.