Hope everyone feels alright post-exam!
So, enhanced indexing involves making minor risk-factor mismatches versus the benchmark, although duration MUST stay the same as the benchmark’s.
Does this also mean that any kind of bet involving interest rates is prohibited with enhanced indexing? For example, if the manager thought the yield curve was going to steepen/flatten, could they position the portfolio to profit from this as long as the duration is matched?
…As another example, could the manager make bets on key interest rates along the yield curve as long as the overall duration stays the same versus the benchmark?