Index-enhanced funds are not pure index funds. In the process of index investment, an enhanced active investment method is added on the basis of passively tracking the index, and the portfolio is adjusted appropriately, so as to control the risk and obtain a positive market return.
Under normal circumstances, 80% of the funds of index enhancement funds will copy the underlying index, and the remaining 20% will be pursued by fund managers and investment teams to outperform the underlying index by adopting various quantitative enhancement strategies to obtain excess returns. (The specific position arrangement is subject to the actual operation of the fund). The investment strategies of index-enhanced funds issued by different companies may be different, but there is also an obvious similarity, that is, they hope to provide investors with investment performance higher than the target index income level. The index enhancement foundation tests the active management ability of fund managers and investment teams more than the general index funds.
There are many kinds of selective enhanced index investment strategies, all of which are developed by using some imperfect forms of capital market. According to the classification of capital market, it can be roughly divided into two categories: derivative trading strategy and securities strategy.
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1. The derivative trading strategy can adopt the oldest arbitrage method, that is, switching investment between index constituent stocks and index derivative contracts. Take the most popular standard & poor's 500-index enhanced fund as an example. When the futures value of the S&P 500 index is undervalued relative to the stock value, the fund manager will transfer all his portfolio to futures contracts, and when the futures value is overvalued, he will turn back to holding stocks. When the price difference between the short-term contract and the long-term contract is close, the fund manager can cautiously extend the short-term contract to the long-term contract to increase the added value of the portfolio.
2. Futures plus cash enhancement method. The leverage effect of futures contracts makes it possible to enhance the index investment called "futures plus cash". Still taking the Standard & Poor's 500 Index Enhanced Fund as an example, since the Chicago Mercantile Exchange only requires 37.5% of the total contract amount to be guaranteed in the form of 30-day short-term treasury bonds, the fund manager can invest the remaining funds in higher-risk cash equivalent securities (such as one-year treasury bonds or commercial paper) in the hope of obtaining higher returns to increase the return of the portfolio.