What is the tracking error rate of passive index funds?
Passive index fund is an investment tool, whose goal is to track a specific index, such as the Standard & Poor's 500 Index or Nasdaq Index. Refers to the difference between the performance of a fund and the index it tracks. In short, it refers to whether the performance of the fund is consistent with the index it tracks.
Why is it important?
This is an important indicator because it reflects the difference between the performance of the fund and the index it tracks. If the tracking error rate is high, it shows that there is a big difference between the performance of the fund and the index it tracks, which may affect the return rate of investors. Tracking error rate is one of the important indicators to measure the quality of passive index funds.
How to calculate the tracking error rate of passive index funds
Usually calculated by the following formula:
Tracking error rate = (difference between fund net value and index net value/index net value) * 100.
Among them, the net fund value is the actual performance of the fund, and the net index value is the performance of the index. The lower the tracking error rate, the smaller the difference between the performance of the fund and the index it tracks.
How to reduce it?
Some measures need to be taken to reduce it. Fund managers need to choose the right index to track. They need to use effective investment strategies to track the index. For example, they can use the investment strategy of copying the index, or use the optimization strategy to track the index. Fund managers need to control transaction costs and management fees to ensure that the difference between the performance of the fund and the index it tracks is minimal.
conclusion
It is one of the important indicators to measure the quality of funds. In order to reduce the tracking error rate, we need to take some measures, such as selecting appropriate indexes, using effective investment strategies, and controlling transaction costs and management expenses. Investors should pay attention to the tracking error rate of funds in order to make wise investment decisions.