NEW YORK ( MainStreet) — Innovations in consumer electronics are often met with broad consumer indifference: Betamax video, Windows Vista and 3D television are notable examples. Attempts to re-engineer investments are less touted but equally intriguing, one of the most recent being "advanced beta," sometimes referred to as "smart" or "alternative" beta. Is smart beta a true innovation, or the next Betamax?

Smart beta is an index investment strategy based on alternative weighting schemes such as dividends or volatility, rather than capitalization. Instead of a portfolio of index mutual funds or ETFs mixing small-, mid- and large-cap investments, the holdings might be based on book value, sales or cash flow.

"Advanced beta strategies play an important role in helping investors to construct holistic investment strategies while keeping risk and costs in check," said Lynn Blake, chief investment officer of equity beta solutions at State Street. "Our study found that more than half of institutional investors in North America and Europe will be using advanced beta strategies in the near future. The recent spike in equity market volatility, and a reduced appetite for active strategies, may encourage further adoption of advanced beta based on its track record of improving risk adjusted returns."

The just-released State Street study reveals 42% of institutional money managers currently use advanced beta -- and another 24% plan to do so over the next three years.

Three out of four of the investors surveyed said that the strategies are "an attractive alternative to both active and passive fund management and a powerful evolution in asset allocation strategies."

The report finds that even though smart beta is often thought of as alternative to cap-weighted indexing, many investors see the investment model as a replacement for active investment strategies -- and are three times more likely to fund an advanced beta allocation from active rather than passive holdings.

U.S. investors are lagging behind in adoption of advanced beta, while one quarter of European respondents report allocating 20% or more of equities in their portfolios to advanced beta. Just 4% of North American money managers do.

"The main advantage that advanced beta strategies provide is the ability to select a portfolio that best meets specific risk and return objectives, versus taking a one-size-fits-all approach," said Kristi Mitchem, executive vice president and head of the Americas institutional client group at State Street. "While we are still on the early part of the adoption curve with these strategies, investors are becoming aware that similar returns can be achieved at a lower cost than traditional active management. That is a trend that can't be ignored."

But is advanced beta the 3D television of investing? While 70% of investors surveyed reported high levels of awareness about advanced beta, only 40% are confident about implementation.