Which description best defines index management?

• A. An investment style characterised as owning the overall market and generally owning the constituents of an index such as the S&P500 or the MSCI EAFE index.
• B. An approach focused on selecting individual securities to beat the benchmark.
• C. A risk-management technique for hedging portfolios with options.
• D. A short-term trading strategy based on momentum.

Answer: (A)

Index management focuses on building a portfolio that mirrors a market index, aiming to match the index’s performance rather than trying to beat it. The described approach fits this idea by owning the overall market and the index’s constituents, such as those in the S&P 500 or MSCI EAFE, which is exactly how indexing works. This is a passive strategy that emphasizes broad exposure and low turnover rather than active stock picking to outperform a benchmark. It’s not about selecting individual securities to beat the benchmark, not about hedging with options for risk control, and not about short-term momentum trading.