Enhanced Index Fund (EIF)

What Is an Enhanced Index Fund (EIF)?

An enhanced index fund is a fund that tries to improve the returns of an index by utilizing active management to change the weights of holdings for unexpected return.

Understanding Enhanced Index Funds (EIF)

Enhanced index funds are obliged to investing in securities from the index they are benchmarking. These strategies can convey different types of investment analysis. They might use qualitative and quantitative systems to recognize and overweight top-performing stocks. At times, they may likewise utilize leverage and derivatives to improve returns.

Enhanced Index Fund Strategies

Enhanced index funds can be benchmarked to any index in the world. They start with the benchmark index as a basis for investment. Through qualitative and quantitative analysis, portfolio managers look to recognize top performing stocks, which then receive greater weight in the portfolio. A few funds might utilize leverage and derivatives, permitting the funds to increase the weights of stocks they decide to buy and diminish the weights of stocks they decide to sell.

With leverage, funds can take further long positions in stocks they favor. Leverage and derivatives likewise permit the fund manager to short stocks they accept will trend lower. Fund managers may likewise take no position in a stock, providing it with a weighting of 0% in the portfolio.

Hypothetically, the ability to take both long and short positions ought to assist a fund with creating extra alpha from likely stock gains and losses. Notwithstanding, the utilization of leverage and derivatives can add extra costs and increase the potential for losses. Consequently most enhanced index funds depend on active management philosophies worked around a specific index universe without the utilization of alternative investing.

Enhanced Index Fund Investments

While enhanced index funds utilize similar index universe for investment as passive funds, their investing qualities will be totally different. Enhanced index funds commonly have higher management fees and higher transaction costs than comparable index funds. Risks can likewise be higher relying upon leverage and derivatives utilized.

Investors will find enhanced index fund offerings from investment managers across the industry, with the majority of the largest asset managers offering a broad scope of enhanced index fund products. The Fidelity Large Cap Value Enhanced Index Fund gives one model.

The Fidelity Large Cap Value Enhanced Index Fund

The Fidelity Large Cap Value Enhanced Index Fund tries to upgrade the return of the Russell 1000 Value Index. The Fund involves quantitative fundamental analysis in its investment choices, investing no less than 80% of assets in Russell 1000 Value stocks. The Fund doesn't substantially depend on leverage or derivatives in its management strategy. The Fund has consistently beated the Russell 1000 Value since commencement with a return of 7.08% versus 6.85% for the Index.