ESMA has published a statement informing investors about the potential for some European collective investments funds to be "closet index trackers", and to provide details on the work that ESMA has been doing relating to this. Closet indexing (also known as index hugging) refers to the practice of fund managers claiming to manage portfolios actively when in reality the fund stays close to a benchmark. ESMA is concerned the practice may harm investors as they are not receiving the service or risk (or return) profile they expect based on the fund's disclosure documents, while paying higher fees compared to those typically charged for passive management. The statement summarises ESMA’s recommendations to management companies and investors and confirms that ESMA will continue to work with national regulators to determine further actions, such as the need for additional steps to ensure that all market participants comply with disclosure obligations to the full extent.