Skip to main content
No. of Recommendations: 0
This from Morningstar may be worth considering.

In the tame old days before Nasdaq dominated the galaxy (say, 1997), enhanced index funds were indeed the rage. Their vow was modest--to edge past the index, year in and year out--but then again, so were our collective ambitions. Plus, the logic seemed sound. Since portfolio managers will generally perform poorly if they are missing the year's top sector (try competing in 1999 while being light in technology!), why take that chance? Why not copy the indexes' general characteristics and whip those blind, dumb animals at the stock-by-stock level? That way, portfolio managers could show off their greatest strength, their in-depth knowledge of companies.

As is so often the case with theories, the logic was more convincing than the results. In aggregate, enhanced index funds haven't been. Sure, there have been a few winners. Schwab Analytics SWANX has beaten the S&P 500 over its four-year history, Vanguard Growth & Income VQNPX has slightly better risk-adjusted performance than the benchmark over its trailing three years, and Aetna Index Plus Large Cap AELAX has been on a roll. But for every winner, there has been a loser, like the offerings from PIMCO, J.P. Morgan, and Nations. And even the winners have alternated good and bad years--an unpleasant trait for a fund category that promises above else the virtue of consistency.

So, Jerry, while we can't quite call the group a failure, we must also acknowledge that it didn't fulfill its promise. Quiet obscurity would seem an appropriate fate.

There is also this TMF article which offers some interesting ideas on the "enhanced indexing" concept.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.