/Closet_Index_Tracking

Closet Index Tracking (or Closet Indexing and Index Hugging) relates to the practice of a fund manager claiming to actively manage an investment portfolio when in reality the fund closely tracks an index. This paper explores the problem of identifying a Closet Index Tracker Fund. This paper first provides a general overview of the regulatory background and the challenges it poses. Then it moves to analyse a set of funds investing in European Large capitalization Equities according to Morningstar’s classification. After calculating a set of statistics on these funds against a set of indices, the paper outlines a procedure to spot potential passive tracker funds relying on clustering unsupervised machine learning algorithms

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Machine Learning and Closet Index Tracking

Closet Index Tracking (or Closet Indexing and Index Hugging) relates to the practice of a fund manager claiming to actively manage an investment portfolio when in reality the fund closely tracks an index. This paper explores the problem of identifying a Closet Index Tracker Fund. This paper first provides a general overview of the regulatory background and the challenges it poses. Then it moves to analyse a set of funds investing in European Large capitalization Equities according to Morningstar’s classification. After calculating a set of statistics on these funds against a set of indices, the paper outlines a procedure to spot potential passive tracker funds relying on clustering unsupervised machine learning algorithms.