Calculate Tracking Error Etf
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risk free using our free Forex trading simulator. Advisor Insights Newsletters Site Log In Advisor Insights Log In How can I calculate the tracking error of an ETF or indexed mutual fund? By J.B. Maverick | May 28, 2015 -- 12:11 PM EDT A: Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a how to calculate tracking error of a portfolio standard deviation percentage calculation. However, a simpler method is to just subtract the index or benchmark return from the portfolio return. For example, if an index or benchmark gains 2% over the course of a year, but an index mutual fund that tracks the index gains 3% over the same time period, then the tracking error for that mutual fund is 1%. Tracking error can be an important factor in portfolio management, although investors often overlook this measure. All index funds do not perform exactly the same, nor do they all perfectly match up with the index or benchmark they are designed to track. Tracking error is simply the amount by which a fund's return, as indicated by its net asset value (NAV), varies from the actual index return. Analysts recommend considering tracking error as one factor when making the decision of choosing one index fund over another. The term "tracking error" can be misleading. Tracking error is not necessarily a negative, since the deviation from the index can be positive for investors if their chosen fund outperforms the index. However, one of the main reasons for investors to watch for tracking error is the fact that historical analysis shows that, on avera
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a Variable Worth Watching Advertisement Search Subscribe Now Log In 0 Settings Close search Site Search Navigation Search http://www.nytimes.com/2013/04/07/business/mutfund/exchange-traded-funds-tracking-error-is-often-overlooked.html NYTimes.com Clear this text input Go http://nyti.ms/Y34Ucv Loading... See next articles See previous articles Site Navigation Site Mobile Navigation Advertisement Supported by Mutual Funds In Exchange-Traded Funds, a Variable Worth Watching By ANNA BERNASEKAPRIL 6, 2013 Continue reading the main story Share This Page Continue reading the main story EXCHANGE-TRADED funds that track tracking error indexes may sound like straightforward investments. Because they tend to have low fees and can be used to build diversified portfolios, as well as for esoteric strategies, E.T.F.’s are wildly popular among individual and institutional investors alike. But even when E.T.F.’s appear simple, there may be more risk than meets the eye.Buying an index calculate tracking error fund does not, in fact, guarantee the same return as the index. While variations tend to be small, the difference between a fund’s return and the index’s return, often called tracking error, can sometimes be significant. Each fund uses its own method and terminology when discussing tracking error, but it’s clear that some funds mimic their benchmarks better than others.The average tracking error of all E.T.F.’s listed in the United States last year was 59 basis points, or slightly more than half of a percentage point, according to a study released last month by Morgan Stanley Smith Barney. For those E.T.F.’s with at least one year of trading history, Morgan Stanley compared the difference in total 2012 return between each fund and its underlying index.The numbers varied widely. For instance, the study found that the iShares MSCI Emerging Markets Financials E.T.F. outperformed its index by 5.39 percentage points last year, while the PowerShares MENA Frontier Countries Portfolio underp
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