Case | HBS Case Collection | November 1992 (Revised December 1994)

BEA Associates: Enhanced Equity Index Funds

by Andre F. Perold

Abstract

BEA's enhanced index fund product uses derivatives and cash market securities to find the most efficient way to "track an index." The considerations involve transaction costs, custodial fees, withholding taxes on dividends, and fees from securities lending. In this case, BEA is faced with the task of investing an off-shore portfolio so as to track the S&P 500. The choices include buying the underlying stocks, buying an S&P 500-index-linked note, buying futures or doing an S&P 500 swap, and investing in a variety of short-term fixed-income alternatives.

Keywords: Credit Derivatives and Swaps; Investment Portfolio; Management; Investment Banking; Competitive Advantage; Cost Management;

Citation:

Perold, Andre F. "BEA Associates: Enhanced Equity Index Funds." Harvard Business School Case 293-024, November 1992. (Revised December 1994.)