Although we have reduced our exposure to public equities in recent years, stock indexing continues to be an important component of our long-term investment strategy. Equity index portfolios are managed by our Tactical Asset Allocation group.

We buy to replicate major stock indexes in Canada, the U.S. and abroad. Our global perspective has provided us with many more opportunities to create value. These portfolios form the broad foundation of the fund's equity investments. We use indexed equity portfolios like a bank to maintain our asset-mix policy weighting. For example, the international equity index portfolios act as an equity bank to ensure U.S. equities and non-North American equities allocations remain at the policy asset mix regardless of our short-term view on markets.

We minimize transaction costs by trading large blocks of individual stocks or baskets of different stocks in a single transaction. Greater use of electronic trading is further reducing costs.

We measure the performance of our equities portfolios against the performance of standard indexes. These indexes act as our benchmarks. To see which indexes we use, please see the chart Investment Performance in our annual report.

Enhanced indexing
We also have developed quantitative portfolios that invest in global stocks based on models that attempt to identify strategies and stocks that should outperform the relevant indexes.

For equity index funds, we invest entirely in equity-based derivatives to earn market returns. Since the correlation of these investments to market performance is extremely high, these portfolios achieve market returns on a consistent basis.