Large tracking errors make fund values unpredictable at any given time. Still, funds that that underperform one year may outperform in the next – tracking error may occur in both the negative and positive direction. iShares portfolio manager Dina Ting says that “over the long-term, we’ve delivered on our objectives.”
ETF tracking error may also be a result of the makeup of a portfolio. Some ETFs include every stock or bond from a target index, but many bond ETFs hold a representative sample, which makes them more vulnerable to tracking errors. Other reasons tracking errors might occur is because of limits to a specific stock weighting within an ETF or the existence of hard-to-trade securities. [Tracking Error: What It Is and How It Happens.]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
