A fund that aims to track an index, but also attempts to boost returns by straying from the index in order to take advantage of market timing, specific stock selections, and/or leverage. This is an index fund which has been modified by either adding value or reducing volatility through selective stock-picking.
Enhanced index funds trade with the "index fund" title, but to be fair, that's where the similarity usually ends. True index funds have consistently lower fees, lower turnover and passive management. Enhanced index funds, on the other hand, are actively managed to beat the return of the tracking index. This approach causes relatively higher fees and turnover than the traditional index fund. While proponents of enhanced index funds cite better total return performance as a plus for this type of fund, investors need to be aware that using leverage and active management also increases risk, at least as compared to a conventional index fund.
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