Assets held by the European ETF industry increased for a sixth consecutive year and marked a new all-time high at €631.2 bn at the end of December 2017.
EXCHANGE TRADED FUNDS
The ETF selection should be carried out in a second step and requires understanding how well ETFs perform compared both to their benchmarks and their peers. It is determined by the Tracking Difference, which is the difference between an ETF and its official benchmark total return on a given period.
The Tracking Error (TE) is a measure to assess how close an ETF tracks the index. This gives a reasonable tool to check the stability of the ETF tracking ability. While the volatility gives a general risk on the return of the ETF and is directly attached to the volatility of the index, the TE presents an additional risk measure that highlights the risk of the replication and not the Market risk.
The primary objective of an ETF is to track its index. In the best-case scenario, the ETF’s tracking difference is expected to equal the ETF fees. However, it is very rare that this scenario happens, ETFs providers either beat this expected return or the other way around, tend to present worst performance.
TrackInsight has been launched in October 2014 to answer a simple question: “which is the best ETF to replicate a given index?”. A few years later, with the surge of the passive investing and the multiplication of ETFs available on the market, this issue is more relevant than ever.
The promoters of ETFs enjoyed net inflows (+€6.6 bn) for October. These flows were at the same level as the flows for September but were still below the rolling 12-month average of €6.9 bn.