Average Tracking Error Index Funds
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Funds Money Managers Plan Sponsors Reference MaterialsArticles Concepts Statistics StatFACTS Links Conference Materials Dynamic Text Client ResourcesTraining/SupportRegional Training New User Online Training Weekly Online Training Template Library Guides Help VideosOnline Tutorials Quick Tip Videos DownloadsData Updates Software tracking error information ratio Beta Installs WebEx E-mail: * Password: * Remember me Request new password tracking error interpretation Updates Contact Us Site Map Home Reference Materials Articles Concepts Statistics StatFACTS Links Conference Materials Dynamic Text tracking error formula Contact Us Request More Information 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 can tracking error be negative 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 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
Tracking Error Etf
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 high tracking error if there was a high degree of outperformance but a low tracking error if there was consistent underperformance. Tracking error does not distinguish between the two. What Do the Graphs Show Me? Below are two very different active managers. The green bars represent months of outperformance. The red bars are months of underperformance versus the benchmark. Tracking error is created by taking the standard deviation of the red and green bars. We can infer just how active a manager’s strat
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Annualized Tracking Error
Europe ETFs REIT ETFs Bond ETFs Fixed-Income ETFs Schwab ETFs China ETFs Gold ETFs tracking error cfa Silver ETFs Commodity ETFs Health care ETFs Smart-beta ETFs Currency Hedged ETFs High-Dividend-Yield ETFs SPDR ETFs Dividend ETFs iShares ETFs tracking error morningstar Technology ETFs Emerging Markets ETFs MLP ETFs Vanguard ETFs See all ETF channels ETF.com Events All Events Awards Dinner ETF Live ETF University Inside Fixed Income Inside Smart Beta Inside ETFs Inside ETFs http://www.styleadvisor.com/resources/statfacts/tracking-error Europe Webinars ETF University ETF Guides ETF University Menu About About Us Careers Advertise Reprints Subscribe Contact Us Legal Info Terms of Service SEARCH Login/Register Home / Guide to ETFs / Understanding Tracking Difference And Tracking Error Understanding Tracking Difference And Tracking Error ETF.com How do you know if an ETF is doing its job well? Some might turn to last year’s performance, but performance isn’t the answer—markets http://www.etf.com/etf-education-center/21030-understanding-tracking-difference-and-tracking-error.html go up and down regardless of how well an ETF does its job. The simplest answer is “tracking difference.” Tracking difference is investors’ metric for assessing whether they’re getting what they pay for. As such, it’s one of the most important ETF statistics to consider. What Is Tracking Difference? The vast majority of ETFs aim to track an index—which means that ETFs try to deliver the same returns as a particular index. Tracking difference is the discrepancy between ETF performance and index performance. Tracking difference is rarely nil: The ETF usually trails its index. That’s because a number of factors prevent the ETF from perfectly mimicking its index. ETF returns don’t always trail their index though; tracking difference can be small or large, positive or negative. Tracking error is a related but distinct metric. Tracking error is about variability rather than performance. Math geeks measure variability through standard deviation. Tracking error is the annualized standard deviation of daily return differences between the total return performance of the fund and the total return performance of its underlying index. In laymen’s terms, tracking error basically looks at the volatility in the difference of performance between the fund and its index. So, wha
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