A smart beta fund publishes its rules, rebalances on a schedule, and charges perhaps 0.15% to 0.45% rather than the 0.03% of a broad index fund or the 0.8% of an active fund. What it sells is systematic exposure to value-factor, momentum-factor, quality-factor or similar.
The label covers very different things. Two funds claiming the same factor can define it differently, rebalance at different frequencies and cap sector weights differently, producing years of divergence. Reading the methodology is not optional.
Two structural risks recur: the product is often launched after the factor has performed well, which is when valuations within it are least attractive, and the extra turnover relative to cap weighting eats part of the premium. See factor-crowding and portfolio-turnover.
Related: factor-investing, index-construction, factor-crowding, portfolio-turnover, etf, total-expense-ratio