RT Journal Article
SR Electronic
T1 Synthetic and Enhanced Index Strategies Using Futures on U.S. Indexes
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 61
OP 74
DO 10.3905/jpm.1999.319697
VO 25
IS 5
A1 Joanne M. Hill
A1 Humza Naviwala
YR 1999
UL https://pm-research.com/content/25/5/61.abstract
AB Stock index futures and swaps offer a means of generating index return that is flexible and efficient from both a cost and an operational perspective. Index replication strategies include equitizing cash, tightening benchmark tracking, enhancing index returns, synthetic international indexing, global asset allocation, synthetic indexing as part of a strategy or manager transition, and country or capitalization tilts. This article provides a detailed analysis of the basic building blocks common to all these strategies. Using the most common futures on U.S. indexes, they show how synthetic index returns are generated and analyze their performance and tracking risk characteristic. The evidence is that, because of reversals in monthly synthetic returns compared to indexes, quarterly return tracking error is much lower and a better indication of tracking risk than that based on monthly return.