On the Right Track: Measuring Tracking Efficiency in ETFs

If you invest in ETFs, it's important to understand the factors that influence tracking error and tracking difference

Alanna Petroff 8 February, 2013 | 4:21PM
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Beginning this year, providers of index-tracking funds such as exchange-traded funds (ETFs) will be required by European regulators to disclose predictions for their funds’ tracking error and tracking difference. These are the two most popular ways to see if ETFs are accurately tracking their designated indices.

Tracking error measures how consistently a fund is tracking its benchmark, while tracking difference looks at the under- or outperformance of a fund relative to its benchmark.

In response to this, Morningstar's ETF team completed an indepth study about tracking error and tracking difference for ETFs.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.

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