Ibbotson Associates plans to release a study this month that casts doubts on the wisdom of using enhanced indexing as a substitute for traditional passive management. The study, which will be released to Ibbotson's clients in approximately two weeks, found enhanced indexing products are not doing the job for which sponsors are choosing them, said Scott Lummer, managing director.
The study found almost all enhanced indexing products reviewed are taking more risk than the index they track, taking big bets with derivatives and other instruments that deviate from the index, said Mr. Lummer. To treat them as indexed managers and compared them with traditional passive management is incorrect; they should be classified as active managers instead, he said.