Related: Why Consider a Smart Beta ETF Over Traditional Market-Cap Exposure

Deutsche Asset Management believes alpha over tracking error is a critical way to outline whether or not moves away from the benchmark were justified. The alpha and tracking error pairing, or so-called information ratio, provides a probabilistic insight into the likelihood that a strategy outperforms its benchmark over a given timeframe.

“Our view is that investors should prefer higher information ratios over lower ones in general,” according to the Deutsche strategists. “For an investor who is not constrained by a particular tracking error target, higher alpha-generating strategies even with the same information ratio could be preferred.”

For more information on alternative index-based strategies, visit our smart beta category.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.