In the questions I have seen so far, enhanced indexing is preferred over full replication as its less costly than buying everything in the index etc. So when and why would anyone use pure indexing?
If the index you’re replicating contains lesser no of stocks and in turn cheaper to replicate. If there are no constraints in passive investing (eg ESG) thats when.
Saura is correct. Another reason is, let’s say you’re trying to replicate a index that is large cap and all the components are mega size companies, very liquid and small bid/aslk spreads… Then the costs would be very small for full replication – another reason a manager may implement it.
So essentially, the index needs to be super easy and/or cheap to replicate, otherwise, enhanced indexing is the way to go?
Perhaps you manage a fund whose mandate is that you duplicate a particular index.