With the major indexes performing so well, enhanced exchange-traded funds are having a hard time making a case for themselves, the Associated Press reports.Portfolio managers of enhanced ETFs are going to have to make some smart calls if they hope to compete against regular ETFs and index funds, which are not only offering strong performance right now but are well known for their lower fees and tax efficiencies.

The S&P 500 Index reached a record high it has not seen since 2000. Likewise, the Russell 2000 and Dow Jones Industrial Average indexes have also been continually reaching record highs for a number of months.

Enhanced index funds very often invest in smaller companies that fall outside of the index due to the outsize gains they can deliver, said Joel Dickson, a principal at Vanguard Quantitative Equity Group. “One of the reasons that these types of strategies have become so popular in recent years is because they’ve performed well,” Dickson said.

But Tom Roseen, an analyst with Lipper, said investors are better off holding enhanced ETFs in the short term. “If you’re pretty good at calling market rotations and you have the knack to do that, then I think enhanced index funds can work,” Roseen said. “They’re made for people who do want to place a bet. Certainly, this is not for the person who just buys and holds.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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