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.
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Cached on May 23, 2012, 7:24 pm