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HEAD-TO-HEAD: Seven China equity ETFs compared
FSA compares no fewer than seven China equity ETFs available to Hong Kong investors tracking the same index, the CSI 300.
Data: FE, 30 November 2017.
While the tracking error is a commonly accepted way to measure how well an ETF tracks the underlying index, it is important to understand what it means. In particular, it is important to differentiate it from the tracking difference.
Tracking difference measures daily deviations in returns between the ETF and the index.
Tracking error, in turn, is calculated as the standard deviation (volatility) of these daily tracking differences.
“If the fund underperforms the index by exactly the same percentage every day, there would be no tracking error,” Choy said.
In order to better judge the ETF’s performance, both the tracking error and the tracking difference should be taken into account.
While the tracking difference values for the seven ETFs are not available in FE, they can be estimated by comparing the fund’s returns with those of the index, after taking into account the fees.
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