Here are the index funds with lowest tracking error and tracking difference - Cafemutual.com (2024)

FAQs

Which index fund has the least tracking error? ›

It's calculated in percentage terms. Among large cap funds, Navi Nifty 50 Index Fund has the lowest tracking error of 0.01% among large cap index funds followed by Navi Nifty Next 50 Index Fund with tracking error of 0.02%. In the midcap space, Navi Nifty Midcap 150 Index Fund has the lowest tracking error of 0.01%.

One way to differentiate index funds is to look at their tracking error. Tracking error indicates how consistently the index fund was able to track its underlying index. A high tracking error means there was a high deviation in the returns of the index fund and its target index.

Most of the time, the tracking error of an index fund is small, perhaps only a few tenths of one percent. However, a variety of factors can sometimes conspire to open a gap of several percentage points between the index fund and its target index.

1. Vanguard S&P 500 ETF (VOO -0.7%) Legendary investor Warren Buffett has said that the best investment the average American can make is a low-cost S&P 500 index fund like the Vanguard S&P 500 ETF.

It's about how much those excess returns oscillate around the portfolio's benchmark during that period. Tracking error is measured as the standard deviation of excess returns over time. It's an indicator of how consistently close or wide an index ETF's performance is relative to its benchmark.

The acceptable level of tracking error is determined by each investor. Tracking error is neither good, nor bad. The performance of a portfolio with a 1.0 tracking error to its benchmark can be either higher or lower than the performance of the benchmark.

An index tracker fund (also known as a passive fund) aims to track the performance of a particular index; such as the FTSE 100 or the FTSE All Share. They offer a convenient way to gain exposure to a broad range of shares or bonds at a low cost.

While they offer advantages like lower risk through diversification and long-term solid returns, index funds are also subject to market swings and lack the flexibility of active management.

Calculating tracking difference is rather simple: Subtract the index's total return from the ETF's total return. Tracking difference can be positive or negative and reveals the extent to which an ETF outperforms or underperforms its benchmark index.

Lower risk: Because they're diversified, investing in an index fund is lower risk than owning a few individual stocks. That doesn't mean you can't lose money or that they're as safe as a CD, for example, but the index will usually fluctuate a lot less than an individual stock.

How do I find my mutual fund tracking error? ›

Given a sequence of returns for an investment or portfolio and its benchmark, tracking error is calculated as follows: Tracking Error = Standard Deviation of (P - B)

If you're a long-term investor (and you should be) you don't need to check your stocks every day. You don't even need to check your stocks every WEEK. I only check my stocks once or twice a month to make sure the automation is working.

Any time is good for investing in index funds when you plan to hold the fund for the long term. The market tends to rise over time, but not without some downturns along the way, thanks to short-term volatility.

The largest Aggressive ETF is the iShares Core Aggressive Allocation ETF AOA with $1.91B in assets. In the last trailing year, the best-performing Aggressive ETF was EAOA at 18.14%. The most recent ETF launched in the Aggressive space was the iShares ESG Aware Aggressive Allocation ETF EAOA on 06/12/20.