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The Journal of Index Investing

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Article

On the Right Track: Measuring Tracking Efficiency in ETFs

Ben Johnson, Hortense Bioy, Alastair Kellett and Lee Davidson
The Journal of Index Investing Winter 2013, 4 (3) 35-41; DOI: https://doi.org/10.3905/jii.2013.4.3.035
Ben Johnson
is director of Global Passive Fund Research at Morningstar Inc. in Chicago, IL.
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  • For correspondence: ben.johnson@morningstar.com
Hortense Bioy
is director of European Passive Fund Research at Morningstar UK Ltd. in London, UK.
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  • For correspondence: hortense.bioy@morningstar.com
Alastair Kellett
is an international ETF analyst at Morningstar UK Ltd. in London, UK.
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  • For correspondence: al.kellett@morningstar.com
Lee Davidson
is an ETF analyst at Morningstar Inc. in Chicago, IL.
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  • For correspondence: lee.davidson@morningstar.com
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Abstract

Exchange-traded funds (ETFs) are, with the exception of certain actively-managed products, designed to track the performance of an index. This concept is easy to understand, but putting it into practice is far more difficult than it seems. While indexes are typically replicable in theory, index returns are an unattainable ideal, as they ignore the practicalities of portfolio construction and ongoing management. There will always be factors involved in the replication process that will cause mis-tracking, and investors should be aware of these realities and arm themselves with the knowledge of where performance deviations originate and how to measure them.

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The Journal of Index Investing: 4 (3)
The Journal of Index Investing
Vol. 4, Issue 3
Winter 2013
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On the Right Track: Measuring Tracking Efficiency in ETFs
Ben Johnson, Hortense Bioy, Alastair Kellett, Lee Davidson
The Journal of Index Investing Nov 2013, 4 (3) 35-41; DOI: 10.3905/jii.2013.4.3.035

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On the Right Track: Measuring Tracking Efficiency in ETFs
Ben Johnson, Hortense Bioy, Alastair Kellett, Lee Davidson
The Journal of Index Investing Nov 2013, 4 (3) 35-41; DOI: 10.3905/jii.2013.4.3.035
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  • Article
    • Abstract
    • DEFINING TRACKING ERROR
    • DEFINING TRACKING DIFFERENCE
    • OUR RESULTS: ETFs HAVE TRACKED WELL
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  • PDF (Subscribers Only)

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