Consider an investor who aims to achieve returns that closely match those of the S&P 500 index. The investor is exploring methods to implement passive equity investing and is interested in replication methods to achieve this objective. Replication methods can vary in complexity and execution, from using full replication strategies involving direct purchases of the underlying stocks to synthetic replication using derivatives.
Which replication method allows the investor to closely track the performance of the S&P 500 index while minimizing transaction costs and the need for frequent rebalancing?