Average Etf Tracking Error
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Etf Tracking Error Calculation
Latest Videos Why Create a Financial Plan? John McAfee on the IoT & Secure Smartphones Guides etf tracking error definition 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 oil etf tracking error risk! FX Trader Trade the Forex market risk free using our free Forex trading simulator. Advisor Insights Newsletters Site Log In Advisor Insights Log In ETF Tracking Errors: Protect Your Returns By Eric Fontinelle Although rarely considered by the average investor, tracking errors can have an unexpected material effect on an investor's returns. It is important to
Leveraged Etf Tracking Error
investigate this aspect of any ETF index fund before investing. The goal of an ETF index fund is to track a specific market index, often referred to as the fund's target index. The difference between the returns of the index fund and the target index is known as a fund's tracking error. Most of the time, the tracking error of an index fund is small, perhaps only a few tenths of one percent. However, a variety of factors can sometimes conspire to open a gap of several percentage points between the index fund and its target index. In order to avoid such an unwelcome surprise, index investors should understand how these gaps may develop. SEE: Investopedia Special Feature: Exchange Traded Funds What Causes Tracking Errors?Running an ETF index fund might seem like a simple job, but it can actually be quite difficult. ETF index fund managers often employ complex strategies in order to track their target index in real time, with fewer costs and greater accuracy than their competitors. Many market indexes are market capitalization weighted. This means that the amount of each security held in the index fluctuates, according to the ratio of its market capitalization
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Etf Alpha
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7.13 | About: iShares MSCI (EEM) Morningstar Follow Research analyst, long/short equity, dividend investing, ETF investingSend MessageBy Michael Rawson, CFA In the month of June, the market price of iShares MSCI Emerging Markets (NYSEARCA:EEM) had http://seekingalpha.com/article/1614192-etf-tracking-error-a-phantom-menace a volatility that was 27% greater than its index and an annualized tracking error of 25%. While that might sound alarming, the exchange-traded fund has actually functioned superbly. The concern lies not with the fund, but with how volatility and tracking error are being used. Before we dive into the details of what happened in June to EEM, let's define volatility tracking error and tracking error and discuss some ways in which tracking error can be used. Volatility tells us about the distribution or spread of returns. It can be calculated as the standard deviation of periodic returns. For example, the arithmetic average monthly return of the S&P 500 Index since 1926 through the end of last year is 0.93% and the standard deviation is etf tracking error 5.51%. The worst monthly return in the series was a 29.72% loss in September 1931, while the best month was a 42.56% return in April 1934. This spread of past returns can be seen in the histogram below. Click to enlarge A rule of thumb for annualizing monthly volatility is to multiply by the square root of 12, which gives us 19.08%. Since we often think in terms of annual rates of return, annualizing monthly volatility puts it on a convenient time scale for comparison. Volatility is useful as a measure of risk as it gives a good idea of the spread of possible future returns. Generally, the more volatile a fund has been in the past, the more volatile we can expect its performance to be in the future. Tracking Error and Tracking Difference In concept, tracking error is similar to volatility; instead of referencing absolute returns, though, tracking error is in reference to a benchmark. A fund's excess return is its return minus the return of a benchmark. Morningstar defines tracking error as the standard deviation of a fund's excess retur
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