Tracking Error vs. Underperformance: Key Differences
Summary
Hollow Point Trading shares an explanation of why low tracking error can coexist with consistent underperformance. The announcement distinguishes tracking difference, the return gap over a period, from tracking error, the variability of periodic fund-minus-benchmark returns, using four hypothetical negative monthly returns to illustrate the difference.
https://youtu.be/GOZwEXeHEuw
A low tracking error can coexist with consistent underperformance #...
A fund can track consistently and still lag its benchmark. Tracking difference describes a return gap over a stated period. Tracking error measures variability of periodic fund minus benchmark returns. Those are different questions. Imagine four hypothetical monthly active returns, each negative one tenth of a percentage point. Their variation a...
