The FSA Spy market buzz – 22 March 2024
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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.
AllianzGI on China stewardship, Death of the mutual fund, W’s top financial centres, Schroders on Japan, Swiss cuts and Japanese hikes, Reddit, Book wisdom and more.
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