Creating an Index Portfolio Using Total Return Swaps
An equity swap is an agreement between two parties in which one agrees to pay the total return on an equity or equity index portfolio and the other party agrees to pay an interest payment (usually either a fixed rate or one based on LIBOR) or the return on a different equity or index portfolio.
Swaps can be an efficient way for portfolios to gain access to an index, as the cost of the swap may be lower than the transaction costs of replicating the portfolio.
Active managers may also use swaps as an efficient way of increasing/decreasing exposure to various markets over time.
For more information, see all articles on: Asset Allocation, Derivatives, FInancial Planning, Investing in Stocks, Investing in bonds, Investment Returns, Portfolio Management, Swaps See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
