With investors seeking out new ways to get better returns, so-called smart beta exchange-traded funds are becoming more popular. The reason is a practical one, Dan Draper, Invesco PowerShares managing director, told CNBC on Monday.
"If you really look over the last 15 years, [there have been] unintended consequences," Draper said in an interview with "Power Lunch" from the Inside ETFs conference.
"If you look at the dot-com bubble, you had your tech exposure would have gone from 19 to 31 percent in a year. If you look at Japan bubble, you would have doubled your exposure in a global equity portfolio in Japan over three years. Basically when those markets crash, you really get hurt."
In other words, smart beta funds are not market-cap weighted and therefore they are not overweighted with names that may be overvalued.