In their attempt to improve the returns from an underlying index fund, these enhanced index strategies have forged a sort of hybrid path between true index investing and active fund management. By adding investment skills, they seek to beat a market benchmark net of fees, while delivering a risk profile in line with the index.
Theoretically, the combination of low cost, low turnover and diversification offered by these strategies, coupled with enhancement to attempt to beat the return of the tracking index, represents the best of both worlds.
In a lower-for-longer return environment, every bit of extra return matters. And when small amounts of outperformance compound over long periods, a small amount of difference goes a long way.
Christian Preussner is chief client portfolio manager for US equities and Bryon Lake is international head of ETFs at JPMorgan Asset Management
