Many ETFs Swing and Miss

This is kind of scary. Outside of S&P 500 ETFs, many exchange traded funds have significant tracking errors:

Last year, 54 ETFs showed tracking errors of more than three percentage points, up from just four funds the prior year. And a handful of the 54 missed by more than 10 percentage points.
Nearly all exchange-traded funds, which are baskets of securities that trade all day like stocks, are designed to track indexes. So investors expect returns to closely mimic those of market gauges like Standard & Poor’s 500-stock index or the Barclays Capital (formerly Lehman) U.S. Aggregate Bond Index.
Indeed, many of the larger ETFs that follow the broad market often produce investment returns that miss benchmark returns by only a few hundredths of a percentage point each year. The SPDR (SPY), the largest ETF on the market, missed matching the return of the S&P 500 by just 0.19 percentage point last year. Large-company stock funds from Barclays Capital’s iShares and Vanguard Group were even more precise.
On the other hand, the $40 billion iShares MSCI Emerging Markets Index ETF (EEM) returned 71.8% in 2009, lagging the 78.5% return for its benchmark by 6.7 percentage points.
The $3.7 billion SPDR Barclays Capital High Yield Bond ETF (JNK) posted a return of 50.5% versus 63.5% for the index it tracks, trailing by about 13 percentage points. The misses aren’t always on the negative side: The $200 million Vanguard Telecom Services ETF (VOX) returned 29.6%, overshooting its benchmark’s 12.6% return by some 17 percentage points.

Posted by on February 18th, 2010 at 11:15 pm


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