Research enhanced equity: index-like precision, powered by active insight

For many investors building core equity exposure, the conversation has traditionally been framed as a trade-off: the simplicity and consistency of passive indexing versus the potential for outperformance from active management. But there’s a growing middle ground that aims to deliver elements of both—enhanced indexing or research‑enhanced strategies are designed to keep an index-like risk profile while adding small, deliberate active tilts to seek incremental improvement in return, risk, or both. 

This approach has gained attention globally as investors look for ways to stay close to their chosen benchmark, without being fully constrained by it—captured well by the idea that “a little active goes a long way” when the active risk is tightly budgeted and intentionally deployed.

This piece explores what “research-enhanced” means in practice, why these strategies have drawn attention in more concentrated markets, and where they can fit alongside passive exposures and higher-conviction active allocations.

What “research‑enhanced” means in practice

At a high level, a research-enhanced equity strategy starts with a familiar benchmark (for example, a broad developed-market or global equity index) and then makes many small stock-level overweights and underweights. The objective is not to make major macro calls or large sector swings, but to seek incremental excess return while keeping key characteristics such as country, sector and style closely aligned with the benchmark. This tight benchmark alignment is typically supported by explicit portfolio construction guardrails, such as limits on sector and country deviations, single-name active weight caps, and an overall tracking-error budget. The active risk is intentional and measured, not incidental.

A defining feature is how the active risk is expressed: rather than concentrating in a handful of high-conviction names, research-enhanced portfolios typically spread active bets across hundreds of small positions. The intent is to:

• Keep tracking error (a measure of deviation from the benchmark) consistently low
• Concentrate active risk where the manager believes it has an edge—stock selection—rather than taking large country/sector/style bets
• Seek more consistent outcomes over a full market cycle (recognizing that any active approach can underperform over shorter windows)

Why now: the limits of “pure” passive in a concentrated market

Passive ETFs can be highly effective building blocks because they are transparent, liquid and typically low cost. However, market cap weighted indices can also embed structural biases. Most notably, they allocate more capital to companies that have already outperformed, rather than to those with the most attractive forward-looking fundamentals.

That matters more in today’s unusually concentrated market. The top 10 companies in the S&P 500 represent roughly 40% of the index.¹ By sector, technology is more than 37% of the S&P 500 and over 54% of the Russell Growth Index.² Yet meaningful growth is occurring outside the largest names and beyond the tech sector. For example, the “Magnificent 7” have returned about 9% this year, while the other 493 S&P 500 constituents have returned roughly 15%.³ In this environment, some investors want to maintain broad market exposure while reducing reliance on yesterday’s winners, without giving up the discipline of an index-aware framework.

Research-enhanced strategies are designed to meet that need by keeping broad benchmark alignment while allowing the portfolio manager to express fundamental views across a diversified set of stocks through small tilts intended to compound over time.

Where research‑enhanced fits in a portfolio

Research‑enhanced equity can be used as:

• A core allocation seeking to stay close to a broad equity benchmark while aiming for incremental excess return.
• A way to manage risk for those concerned about index concentration and forward-looking fundamentals.
• A complement to higher‑conviction active strategies (which may take larger active risk).

Ultimately, the appeal is clarity of intent. These strategies are designed to behave like an index at the portfolio level, while pursuing a disciplined, diversified set of stock-level tilts that can add up over time. For investors who want benchmark-like precision but still believe active insight can be rewarded, especially in a more concentrated market, research enhanced can be a pragmatic middle ground between owning the market and trying to beat it with big directional bets.

¹ Guide to Markets – Slide 8. As of 8/10/26.

² Guide to Markets – Slide 16. As of 8/10/26

³ Guide to Markets – Slide 10. As of 8/10/26.