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. Active Management

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

    A type of mutual fund with a portfolio constructed to match or ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
Related Articles
  1. Enhance Your Portfolio With Active Equity
    Trading Strategies

    Enhance Your Portfolio With Active Equity

  2. Enhanced Index Funds: Can They Deliver ...
    Mutual Funds & ETFs

    Enhanced Index Funds: Can They Deliver ...

  3. Understanding The Bond Behemoth That ...
    Mutual Funds & ETFs

    Understanding The Bond Behemoth That ...

  4. Choosing The Right ETF Index To Reach ...
    Investing News

    Choosing The Right ETF Index To Reach ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center