The Smart Beta strategy (also known as Smart Beta Investing, Smart Index Investing, Factor-based Investing) typically involves a specialized selection process within an index to identify securities with certain positive characteristics relative to the overall index. This involves altering the distribution of weightings within the index in favor of the selected securities. Such characteristics can include dividends, growth potential, business quality, value (undervalued stocks), low volatility, and others.

As a result, a new index is created, distinct from the base index, which includes increased allocations to individually selected companies (in the case of equity indices) and reduced or excluded allocations to companies that do not meet the selection criteria.

The primary goal of a Smart Beta index is to achieve enhanced investment outcomes (increased returns while maintaining risk levels) compared to a traditional index.

Smart Beta portfolios are often implemented as typical index strategies with pre-defined transparent rules. This inherently makes them closer to passive portfolio investing than active management, combining the advantages of both approaches.

One of the most well-known examples of Smart Beta indices, using dividends as a sorting characteristic, is seen in funds known as "Dividend Aristocrats," such as NOBL (ProShares S&P 500 Dividend Aristocrats ETF), HDV (iShares Core High Dividend ETF), among others.

Examples of Smart Beta indices focusing on value growth include VUG (Vanguard Growth ETF), IWF (iShares Russell 1000 Growth ETF).

Below is their comparison with the S&P 500: