closet index fund(redirected from Closet-Index Funds)
Closet Index Fund
closet index fund
Closet index fund.
A closet index fund is an actively managed mutual fund whose portfolio includes many of the securities in its benchmark index but whose expense ratio is higher than that of a true index fund or exchange traded fund (ETF) tracking the same index.
As the name suggests, a closet index fund may not publicize how closely its portfolio tracks its benchmark index. But the investment objectives listed in the fund's prospectus may reveal that the fund seeks to provide results at least as good as its benchmark.
One way to identify a closet index fund is to consider the fund's R-square, which measures the extent to which the fund's return is determined by changes in its benchmark. The closer to 100 the R-square is, the greater the parallels between a fund's portfolio and the components of the index.