Ddm Tracking Error
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Can Tracking Error Be Negative
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 the manager return and the benchmark return every month or tracking error in excel 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 high tracking error if there was a high degree of outperformance but a low tracking error if there was consistent underp
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Ex Ante Tracking Error
Foreign Fund Standouts Star Rating Performance Rating Methodology Fund Performance Top 1-Month Performers Top YTD Performers Top 1-Year Performers Top 3-Year Performers Top 5-Year Performers Fund http://www.styleadvisor.com/resources/statfacts/tracking-error Category Returns Biggest Daily NAV Changes Closed-End Funds Exchange-Traded Funds Quarterly Market Outlook Fund Screeners Basic Screeners Fund Screener Long-Term Winners Solid Small-Growth Funds Conservative Bond Funds Premium Screeners Premium Fund Screener Index Funds Hidden Gems Lower-Risk Foreign Funds Video Center # A B C D E F G H I http://www.morningstar.com/InvGlossary/tracking_error_definition_what_is.aspx J K L M N O P Q R S T U V W X Y Z E-mail Article | Print Article | digg it | Del.icio.us http%3a%2f%2fwww.morningstar.com%2fInvGlossary%2fGlossary.aspx%3fterm%3dtracking_error_definition_what_is Tracking Error When using an indexing or any other benchmarking strategy, the amount by which the performance of the portfolio differed from that of the benchmark. In reality, no indexing strategy can perfectly match the performance of the index or benchmark, and the tracking error quantifies the degree to which the strategy differed from the index or benchmark. Sponsors Center Sponsored Links Related Tracking Error Terms 52-Week Range American Stock Exchange Annual High Annual Low Ask Price Related Tracking Error Content The Best New ETFs of 2007 Three Fund Picks with Something Extra A Better Way to Measure Fund Performance? Three Questions to Ask Your Index Fund Related Tracking Error Tools Investment Radar Portfolio Manager Stock Screener Site Directory Site Map O
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