Features
Enhanced indexing combines elements of passive management and active management.
Enhanced indexing resembles passive management because enhanced index managers cannot (in principle) deviate significantly from commercially available indices which are derived from statistical bureaus like Standard & Poor's or The Frank Russell Company. Enhanced indexing strategies have low turnover and lower fees than actively managed portfolios.
However, enhanced indexing also to a certain extent resembles active management because it allows managers the latitude to certain deviations from underlying index. These deviations can be used to minimize transaction costs and turnover, or to maximize tax efficiency.
Read more about this topic: Enhanced Indexing
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