Generally speaking, the investment target of fund etf is index, and its investment goal is to pursue the minimization of tracking deviation and tracking error. Generally speaking, the daily tracking error of fund etf is within 1%, and the annual tracking error is within 4%.

The main factors leading to the tracking error are as follows:

1, liquidity

The liquidity of stocks is the main factor that affects the tracking error of index funds. When the fund constructs its portfolio and adjusts its constituent stocks and their weights, it will have an impact on the stock price and make the portfolio deviate from the index. The better the liquidity of constituent stocks, the smaller the influence of index funds on stock prices and the smaller the tracking error. Conversely, the greater the tracking error.

2. Transaction costs

Index funds need to pay transaction commission, stamp duty, transfer fees, etc. When they build a portfolio based on index stocks. The existence of transaction costs makes a certain gap between the portfolio of index funds and the constituent stocks of theoretical target index, which makes the tracking error inevitable.

3. Purchase and redemption of funds

The subscription and redemption of index funds, especially the large subscription and redemption, will have a great impact on the portfolio, increase the transaction cost and market impact cost of the fund, and expand the tracking error with the underlying index.

Tips: The above contents are for reference only.

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