Vanguard, one of the world's largest mutual fund managers, is closely watching the development of smart beta strategies as a complement to its index fund mainstays, its CEO said.
"It's just another way of doing active management. It's maybe a lower cost way of doing active management and that's what gets our interest," William McNabb, chairman and CEO of Vanguard told CNBC.
Vanguard said it doesn't have plans to introduce a smart beta product any time soon.
(Read more: The latest active investment trend is passive)
Smart beta strategies essentially "soup up" indexes. Rather than creating and index-based portfolio weighted by market capitalization, a smart beta fund would use weightings based on other factors such as earnings, dividends and cash flow.
The oldest and simplest versions used equal-dollar weighting, or putting the same amount of money into every company in an index.
Vanguard, which manages around $2.75 trillion, has built its business on offering extremely low-cost index funds, sometimes with expenses of as little as five basis points.
But McNabb noted around 40 percent of Vanguard's assets are in its active funds.
(Read more: Smart beta: Beating the market with an index fund)