In the context of total return mandates, what does enhanced indexing aim to achieve?

Enhanced indexing is a strategy that seeks to provide investors with a return that exceeds that of a benchmark index while maintaining a level of risk that is similar to that of the index. This approach involves a blend of passive and active management techniques. By using enhanced indexing, managers aim to exploit inefficiencies in the market through slight adjustments to the portfolio holdings, while still mostly mirroring the index itself. The objective is to achieve superior performance without the significant risks typically associated with more aggressive active management strategies.

The focus of enhanced indexing is primarily on generating returns that are better than the market average while keeping the volatility at a manageable level comparable to the index. This means that the strategy is designed to enhance returns without taking on the full range of risks associated with more traditional active management approaches. Thus, it strikes a balance between the low-cost benefits of indexing and the potential upside of active management.

Other options, although they may have some relevance in the context of investment strategies, do not specifically capture the essence of enhanced indexing as accurately. For example, minimizing transaction costs is a general benefit associated with passive management but is not the core objective of enhanced indexing. Maximizing tax efficiency may be a consideration in portfolio management but is not the primary goal of enhanced indexing. Similarly,