Average tracking error increases for US listed ETFs

A report by the firm's research team in North America reveals the most common sources of tracking error include fees and expenses, portfolio optimisation and index changes. However, the report notes compliance with the Securities and Exchange Commission's diversification requirements can also cause "extreme tracking error" for certain ETFs, as these funds might be compelled into material weighting and holding deviations from their underlying benchmarks. Tracking error is the difference in total return, between an ETF's net asset value and its underlying index, according to Morgan Stan...