Opportunity: Enhanced Indexing
Unlock your core equity allocation with Enhanced Indexing, which aims to deliver returns ahead of the market after costs while limiting relative risk.
Why Enhanced Indexing?
For investors currently drawn to passive solutions for core allocations, Enhanced Indexing is a smart alternative. This strategy combines the benefits of passive investing, such as transparency, benchmark awareness, predictable risk-return characteristics, diversification and cost efficiency, with highly appealing active features such as balanced multi-factor exposure to generate alpha and a sophisticated risk management approach to deliver high risk-adjusted returns.
Our systematic approach is geared towards investors seeking consistent excess returns within a tightly controlled tracking-error framework Wilma de Groot
Wilma de Groot
Head of Core Quant Equities, Head of Quant Equity Portfolio Management and Deputy Head of Quant Equity
Why now?
Recent years have underscored the growing concentration within equity markets. Catchphrases like FAANG, Magnificent Seven, and GRANOLA reflect how a relatively small group of mega-cap stocks has driven an outsized share of index performance. While these indices have recently outperformed equal-weighted ones, history suggests this won’t always be the case, leaving investors vulnerable to the performance of a few dominant stocks. Given its active nature, Enhanced Indexing can potentially mitigate these concentration risks.
In addition, the current macro environment, characterized by high interest rates and increasing geopolitical instability, coupled with high equity market valuations, might lead to lower future equity returns in the next 10 to 15 years. In this scenario, the low tracking error nature of Enhanced Indexing can allow investors to allocate their risk budget elsewhere while still harvesting the equity premium (market-beating returns after cost).
Enhanced Indexing vs passive: Same, same, but different
Why Robeco?
The strategy is built on decades of investment research and uses proven return signals. It avoids arbitrage risk, which can impact passive solutions due to front-running ahead of index rebalances, and can, in fact, take advantage of these opportunities. Moreover, our rich heritage in quant and sustainable investing allows us to effectively integrate sustainability into these strategies according to evolving sustainability preferences.
Moreover, the big data revolution and exponential growth in computational power are opening up more possibilities in the world of quant investing. Given its research-driven culture, Robeco is well-positioned to navigate and exploit these opportunities. Our cautious pioneering mindset serves us well: we have a robust infrastructure, a notably large quant team, and a history of innovation. To this end, our research agenda continues to focus on refining and diversifying our investment approach, for example, through the use of uncorrelated alternative signals from novel data sources and advanced modeling techniques.
We aim to deliver the best of Enhanced Indexing in terms of risk, return, and sustainability. Importantly, as a cost-effective, low-tracking error solution, this strategy is also well-placed to mitigate concerns about fees.