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What is tracking error in ETF?


Myles

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Hello Myles,

Both exchange-traded funds and mutual funds continue to experience a considerable amount of growth in the number of investors dealing with them.
Of course, as an investor, your main aim is to make profits in such a field. As a new investor, it is most likely that you are not aware of how you can measure how well the fund you invest in traces a benchmark. 
To measure these differences, you may use a tracking error or a tracking difference.
Tracking error is the measure of the deviation of a portfolio's price behavior and benchmark.
The measure is done mostly when the ETF creates an unforeseen profit or loss since it did not perform as desired.
A tracking error shows the performance of an investment and its stability against a benchmark for a while.
It can also be a symbol of a risk level in a fund.
 

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