Abstract: A Framework for Enhanced Indexing in the Brazilian Stock Market

Enhanced indexing is a hybrid fund management style that presents elements of both the active and the passive investment styles. This work presents the basic principles of enhanced indexing fund management, and proposes a methodology to generate the set of its efficient portfolios. Important operational details for practitioners are addressed, such as choosing an appropriate market risk measure, and the mathematical formulation of the optimization models used to generate the set of efficient portfolios. The practical use of enhanced indexing fund management is illustrated in the Brazilian stock market.