Enhanced Indexing

AAA

DEFINITION of 'Enhanced Indexing'

An investment philosophy that attempts to amplify the returns of an underlying portfolio or index fund while also minimizing the effects of tracking error. This type of investing is considered a hybrid between active and passive management and is used to describe any strategy that is used in conjunction with index funds for the purpose of outperforming a specific benchmark.

INVESTOPEDIA EXPLAINS 'Enhanced Indexing'

For example, an investor can short sell poor performing stocks from an index and then use the funds to purchase shares of companies they expect will have high returns. Investors can substantially outperform a benchmark over long time horizons by consistently eliminating their exposure to poor performing stocks and by using the proceeds to invest in other securities.

RELATED TERMS
  1. Short Selling

    The sale of a security that is not owned by the seller, or that ...
  2. 130-30 Strategy

    A strategy that uses financial leverage by shorting poor performing ...
  3. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Active Management

    The use of a human element, such as a single manager, co-managers ...
  6. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
Related Articles
  1. Trading Strategies

    Enhance Your Portfolio With Active Equity

    This strategy provides the potential for larger returns while using less capital.
  2. Mutual Funds & ETFs

    Enhanced Index Funds: Can They Deliver Low-Risk Returns?

    These funds may look appealing. Find out whether they can really live up to all of their promises.
  3. Professionals

    Are Alternative Mutual Funds, ETFs Right for You?

    Alternative mutual fund and ETFs are gaining popularity but are they a good idea for your regular Joe investor?
  4. Investing

    Is the Best Plan for Pot Investing 'Wait-and-see?'

    Legalized marijuana is an emerging industry and those interested in investing in it should proceed with caution.
  5. Investing

    Hedged ETFs That Help You Cushion Currency Impact

    If you’re an investor holding non-U.S. assets, the returns on your investments will be affected when you translate your investment from its local currency
  6. Investing

    Active Funds: Getting What You Are Paying For?

    Fund investing could have hidden costs that can potentially make a big impact on your final return, particularly over the long-term.
  7. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  8. Trading Strategies

    A Legendary Market Skill Experience Traders Have

    Tape readers interpret complex background data during the market day to gain a definable trading edge over the competition.
  9. Investing Basics

    This Investment Strategy Could Be Your key To Success

    Goal-based investing seems like an obvious tactic. But many investors have only a vague idea what their goals are, much less how to achieve them.
  10. Chart Advisor

    ChartAdvisor for February 13 2015

    A weekly technical summary of the major U.S. indexes.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center