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What is Tracking Difference? What is Tracking Error?
Most ETFs are index trackers, meaning they need to buy and hold a variety of stocks or bonds in a recipe that is determined by an index provider.
Tracking Difference
The job of the ETF issuer is to replicate the performance of the index (track it) as accurately as possible, but because the index doesn’t factor in real-world issues like trading costs or swap fees, there will be a difference between the performance of the index and the ETF. This is called Tracking Difference.
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Tracking Error
Tracking Error is a related but different metric that measures the volatility of the difference between the ETF and the index over the previous year. This shows you if the tracking difference is relatively consistent, or if it varies wildly over the course of the year.
If you have to go down a floor, you might use either stairs or a slide. Even though you would eventually reach the lower floor using both ways, the slide will definitely be smoother on your bottom! This is what the Tracking Error measures.
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About Trackinsight
Since our founding in 2016, we have been at the forefront of the industry, delivering accessible, comprehensive, and reliable tools to support the evolving needs of investors.
Over the past decade, Trackinsight has expanded its operations across six countries, serving thousands of professional investors. We’ve consistently innovated to provide cutting-edge solutions that meet the changing demands of the ETF market.
In 2024, Kepler Cheuvreux, a leading independent European financial services firm, acquired a majority stake in Trackinsight, becoming the company's principal shareholder.
This strategic partnership solidifies Trackinsight's position as a premier provider of ETF selection and analysis tools, while strengthening Kepler Cheuvreux’s commitment to becoming a leading player in the ETF sector.
Together, we are committed to offering advanced services that empower professional investors, advisors, institutions, and issuers. This new step enables us to deliver even more comprehensive and innovative technological solutions, driving ETF investing to new heights.
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