Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Index Hugger

What it is:

An index hugger is a type of mutual fund whose performance closely tracks a major stock index.

How it works (Example):

An index hugger is also referred to as a closet tracker.

An index hugger is an actively-managed fund whose value fluctuations closely mirror those of a major market index (e.g. the Dow Jones or the S&P 500). For instance, if the Dow Jones experiences a 500 point rise in value, an index hugger will perform in a very similar manner.

Why it Matters:

In most cases, it's better for an investor to invest in a low-cost index ETF rather than paying for an actively-managed index hugging fund. The only reason to consider paying higher costs for a managed fund is if the portfolio manager has a track record of outperforming the market. An index hugger, by definition, will not give you that added benefit.