Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• ENHANCED INDEX FUND
  
  Unlike an index fund, which strives to mirror the performance of a particular index by owning all of the stocks in the index, an enhanced index fund chooses selectively among the stocks in a particular index in order to produce a slightly higher return. The goal is to narrowly beat the index by anywhere from a fraction of a percent to two percentage points but not more, since 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 under-valued stocks in the index, adjusting holdings to include a larger proportion of securities in higher- performing sectors, or using 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.
  
  Back