The higher trading costs of smart beta exchange-traded funds compared with their plain vanilla counterparts could "severely impair" their long-term returns, according to a study by Morningstar, a conclusion that chimes with repeated warnings made by passive fund pioneer Jack Bogle.

According to Morningstar, the smart beta ETF market is now $478 billion in size, and encompasses some 950 products. However, the data provider said in a report published on February 23 that the alternative benchmarks tracked by these funds, such as momentum and dividend yield, often translate into higher transaction costs, ultimately eating into the long-term returns for investors.