Active Fund Tracking Error
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it indicates how closely a portfolio follows the index to which it is benchmarked. The best measure is the mutual fund tracking error standard deviation of the difference between the portfolio and index returns. Many index fund tracking error portfolios are managed to a benchmark, typically an index. Some portfolios are expected to replicate, before trading
Active Share Tracking Error
and other costs, the returns of an index exactly (e.g., an index fund), while others are expected to 'actively manage' the portfolio by deviating slightly from the index in
Active Risk Tracking Error
order to generate active returns. Tracking error is a measure of the deviation from the benchmark; the aforementioned index fund would have a tracking error close to zero, while an actively managed portfolio would normally have a higher tracking error. Thus the tracking error does not include any risk (return) that is merely a function of the market's movement. etf tracking error In addition to risk (return) from specific stock selection or industry and factor "bets," it can also include risk (return) from market timing decisions. Dividing portfolio active return by portfolio tracking error gives the information ratio, which is a risk adjusted performance measure. Contents 1 Definition 1.1 Formulas 1.2 Interpretation 2 Examples 3 References 4 External links Definition[edit] If tracking error is measured historically, it is called 'realized' or 'ex post' tracking error. If a model is used to predict tracking error, it is called 'ex ante' tracking error. Ex-post tracking error is more useful for reporting performance, whereas ex-ante tracking error is generally used by portfolio managers to control risk. Various types of ex-ante tracking error models exist, from simple equity models which use beta as a primary determinant to more complicated multi-factor fixed income models. In a factor model of a portfolio, the non-systematic risk (i.e., the standard deviation of the residuals) is called "tracking error" in the investment field. The latter way to compute the tracking error complements the formulas
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Training Template Library Guides Help VideosOnline Tutorials Quick Tip Videos fund beta DownloadsData Updates Software Beta Installs WebEx E-mail: * Password: * Remember me Request new password fund standard deviation Updates Contact Us Site Map Home Reference Materials Articles Concepts Statistics StatFACTS Links Conference Materials Dynamic Text Contact Us Request More Information https://en.wikipedia.org/wiki/Tracking_error Complimentary Investment Analysis Schedule Web Demo Tracking Error Also known as the standard deviation of excess returns, tracking error measures how consistently a manager outperforms or underperforms the benchmark. PDF version: StatFacts_Tracking_Error.pdf How Is it Useful? Tracking error measures the consistency of excess returns. It is created by taking the difference between http://www.styleadvisor.com/resources/statfacts/tracking-error the manager return and the benchmark return every month or quarter and then calculating how volatile that difference is. Tracking error is also useful in determining just how “active” a manager’s strategy is. The lower the tracking error, the closer the manager follows the benchmark. The higher the tracking error, the more the manager deviates from the benchmark. What Is a Good Number? A good tracking error depends upon investor preference. If the investor believes markets are efficient and that it is difficult for active managers to consistently add value, then that investor would prefer a lower tracking error. Alternatively, if the investor believes that smart active managers can add significant value and should not be “tied down” to a benchmark, the investor would tolerate higher levels of tracking error. What Are the Limitations? Tracking error cuts both ways, measuring both periods of outperformance and underperformance versus the benchmark. An investor would prefer hi
Retirement Personal Finance Trading Q3 Special Report Small Business Back to School Reference Dictionary Term Of The Day North American Free Trade Agreement - NAFTA A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated http://www.investopedia.com/video/play/tracking-error/ ... Read More » Latest Videos Jared Dillian: Influence Why is Cybersecurity so Important for Investors & Advisors? Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam Simulator Stock Simulator Trade with a starting balance of $100,000 and zero risk! FX Trader Trade the Forex market risk free using our free Forex trading simulator. Advisor Insights tracking error Newsletters Site Log In Advisor Insights Log In Tracking Error Next video: Loading the player... Tracking error is the difference between the return on a portfolio or fund, and the benchmark it is expected to mirror (or track). There are two ways to calculate the tracking error. The first is the easiest. Simply subtract the fund’s return from the return of the index it is supposed to track. For instance, a mutual fund that fund tracking error is pegged to the S&P 500 had a 7% return for the year, whereas the S&P had an 8% return. The tracking error is 1%. The second way to calculate the tracking error is more complicated, but more informative. This calculation involves taking the standard deviation of the difference in the fund’s and index’s returns over time. The formula is: Standard deviation of tracking error = 1/(n - 1) Σ(xi - yi)2 Where n is equal to the number of periods, x equals the fund’s return for each given period and y equals the benchmark’s return for each period. By using the standard deviation calculation, investors get a better idea of how the fund will perform compared to the benchmark over time. A low standard deviation means the fund tracks the benchmark fairly closely. A higher standard deviation means the fund does not track its benchmark very well. These figures indicate how well a fund is managed. Investors seeking a fund that accurately tracks their preferred index should look for funds with low tracking errors. View All More Videos No results found. Related Articles Investing 3 Reasons Tracking Error Matters Discover three ways investors can use tracking error to measure performance for a mutual fund or ETF, whether indexed or actively managed. Investing ETF Tracking Errors: Protect Your Returns Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect agai
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