How Well Run Is Your ETF?

November 18, 2016

Conclusion

In the end, tracking difference and tracking range are only as good as their input data. For U.S. equity ETFs mimicking indexes that reinvest the dividends and targeting market segments where securities lending revenue is stable, the tracking statistics allow investors to predict their future holding costs pretty well.

But as soon as something gets complicated, whether by international exposure that has to deal with dividend tax withholding and post-mutual-fund-timing-scandal regulations that drive a wedge between NAV and index returns, or by sloppy index calculation, tracking difference needs to be unpacked before it can become useful.

Often investors need additional information about NAV valuation practices, index return types, and index dividend withholding rates to make real comparisons between funds.

The interpretation of tracking difference is not always cut and dried, but there’s usually a story there.

At the time of writing, the author held a position in IVV. You can reach Elisabeth Kashner at [email protected].

 

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