What is the goal of a typical enhanced indexing strategy?

The goal of a typical enhanced indexing strategy is to generate modest excess return to cover administrative costs. Enhanced indexing seeks to achieve this by slightly deviating from a market index, allowing for the possibility of small, consistent outperformance while still maintaining a risk profile similar to that of the index. This approach acknowledges that while complete replication of an index or total elimination of risk is not feasible, managers can capitalize on inefficiencies in the market to enhance returns while controlling risk. By targeting modest excess return, the strategy balances the pursuit of performance with cost considerations, making it effective for investors aiming for a more cost-efficient investment solution compared to traditional active management.