ETF Performance
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
ETF performance is the first aspect that a trader takes note of before buying an ETF. ETF performance represents the viability of the ETF. It can be monitored in any time frame: live to annually.[br]
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ETF Performance Trackers
Online trackers make tracking ETF performances easier. One simply needs to know the name or the ticker of the ETF to pull up its complete performance history. ETF performer trackers are good tools for research and analysis. Different time frames vis-à-vis performance gives a clear indication of the longest time a trader can hold that ETF for profits.
ETF Performance and Tracking Error
Though all the ETFs claim to track the indices performance, very few manage to do so. The reasons are the costs involved in the ETF transactions. These are collectively called as tracking errors.
There are five kind of tracking errors.
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When the investors increase or decrease the value of the ETF from the net asset value through demand, the value of the ETF goes above or less than its NAV. ETF managers handle this easily by increasing or decreasing the number of ETF units/stocks respectively.
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Leveraged and short ETFs use different financial instruments like futures, swaps, forwards to replicate twice or thrice the return of the index. This requires daily rebalancing of the funds. As the funds are daily rebalanced, in the longer term, such ETFs may register lesser profits as claimed. However, for short term traders, such tracking errors are very rare.[br]
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Management expense ratio creates a difference in the NAV of the ETF portfolio and the NAV of the indexed stock. This also happens when a strategy called portfolio optimization is utilized. This involves increasing the prices of the ETF stocks to buy the illiquid index basket.
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Commodity ETF buy and sell the future contracts before the expiry dates thus have to invest more to buy the next future contract. This incurs losses and thus the value decreases.
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International ETFs may not follow their benchmark foreign index due to the high cost involved. As currency hedging is expensive, due to the volatility and the interest rate differentials, ETFs follow representative indices and may incur a tracking error.
However, even with the tacking errors, ETF remain an attractive investment option due to their ease of tradability and various styles.
