Enhanced index fund


Also found in: Acronyms.

Enhanced Indexing

A portfolio management strategy that mainly tracks a certain index but is designed to perform slightly better than that index. Typically, enhanced indexing involves holding roughly the same securities as the index in roughly the same proportion; however, the portfolio manager often overweights certain stocks or industries if he/she believes them to be undervalued. This process is called tilting. See also: Enhanced index fund.

Enhanced index fund.

An enhanced index fund chooses selectively among the stocks in a particular index in order to produce a slightly higher return. By contrast, an index fund strives to mirror the performance of a particular index by owning all the stocks in the index.

The goal is to narrowly beat the index anywhere from a fraction of a percent to two percentage points, but not more. A wider spread would classify the enhanced fund as an actively managed mutual fund rather than an index fund.

Enhanced index fund managers may achieve higher returns by identifying the undervalued stocks in the index. Or they might adjust holdings to include a larger proportion of securities in higher performing sectors, or use other investment strategies, such as buying derivatives.

While enhanced index funds may expose you to the risk of greater losses than their plain-vanilla counterparts, they may also offer an opportunity for higher returns.

References in periodicals archive ?
The indexed investment sector, including index mutual funds, enhanced index funds, exchange-traded funds (ETFs), and closet indexers, has experienced rapid growth over the past two decades.
Our sample of passive institutional investors consists of 591 index funds, enhanced index funds, ETFs, and a number of closet indexers.
Second, we repeat cross-sectional analysis using a sample of passive index funds and ETFs, excluding discretionary index funds such as enhanced index funds and closet indexers.
However, we do not restrict our sample to pure index funds and ETFs, but also include enhanced index funds and closet indexers to construct a more complete measure of passive ownership.
(7) The passive sample includes four types of passive institutional investors: 1) 255 open-end equity index funds that aim to replicate the performance of a specific equity index by holding the index constituents in the same proportions as the index, 2) 47 enhanced index funds that reserve certain flexibility on position size and investment strategies, 3) 289 ETFs that track an index and are traded on stock exchanges, (8) and 4) a number of closet indexers.
First, we exclude enhanced index funds and closet indexers from our passive fund sample, leaving only strictly passive index funds and ETFs, and repeat the cross-sectional regression.
High Yield bond space, we find no index or enhanced index funds showing up in the screening.
My data-points screening below indicates that of those 68 funds, only one was an Index Fund, and none were Enhanced Index Funds, leaving 67 actively managed funds:
My data-points screening below indicates that of those 79 funds, 30 are Index Funds and six are Enhanced Index Funds, leaving 43 actively managed funds:
Second, Morningstar defines Enhanced Index Funds as funds similar to index funds, which attempt to match an index's performance, but are unlike index funds since they attempt to better the index by either adding value or reducing volatility through selective stock picking.

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