Enhanced Equity Index Strategies

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1、EnhancedEquityIndexStrategiesIntroduction❖JosephE.Overthepastseveralyearsthepopularityofenhancedequityindexstrate-Pottergieshasincreasedsubstantially.Thisisdueinparttodisappointingactivecoremanagerperformancerelativetothebenchmark.Inaddition,somewouldarguethat

2、theexcessreturnsfrommanyactivemanagerswhohaveSeniorsuccessfullybeatenthebenchmarkarenotcommensuratewiththeriskinessViceoftheirportfolios.Inotherwords,whenactivemanagerreturnsareadjustedforvolatility,the“alpha”orriskadjustedreturnsarebelowzero.PresidentTherisin

3、gpopularityofenhancedequityindexstrategieshasalsobeendrivenbythedesiretogenerateincrementalreturnsfrompassivelymanagedAllianceindexportfolios.Thismaybeduetotheexpectationoflowerabsoluteequi-tyreturnsforthenextseveralyearsgiventheabnormallyhighreturnsoverCapita

4、lthepastdecade.Anadditionalpercentagepointofexcessreturnabovea5%ManagementmarketreturncanbeviewedasmoresubstantialcomparedtothesameexcessL.P.returnwhenthemarketreturnis20%.Generallyspeaking,enhancedequityindexstrategiesarehybridsofac-tiveandpassivemanagementsi

5、ncetheirmethodologiesborrowelementsfrombothdisciplines.TheexpectedreturnsandriskofthesestrategiesfallbetweenthoseexpectedofanindexfundandanactivelyEnhancedEquitymanagedfund.TherearetwoIndexStrategiesdistinctenhancedequityin-dexstrategies.Syntheticfundsusederiv

6、ativestoachievemarketexposureandaddval-SyntheticStock-baseduebytakingrisksinmanagingthecashcollateral.Stock-basedfundsaremoretraditionalinthatexcessreturnsareQuantitativeFundamentalachievedbystockselection.JoePotterhasaB.A.fromSyntheticEquityIndexStrategiesBro

7、wnUniversity,andaSyntheticequityindexstrategiesusederivatives,typicallyS&P500IndexM.B.A.fromthecontracts,togainexposuretotheequitymarket.Thebuyerofafuturescon-UniversityofCaliforniatractessentiallyisacceptingthepricemovementoftheunderlyingindexatLosAngeles.wit

8、houttakingphysicaldeliveryoftheactualsharesintheindex.IftheS&P500Indexgoesup,thebuyerofthecontractwillreceivecashthefollowingdayinanamountthatreflectsthenotionalvalueofhiscontracta