Tracking errors Clause Samples
A tracking errors clause defines the permissible deviation between the performance of a managed portfolio and its benchmark index. In practice, this clause sets a specific range or limit for how much the portfolio's returns can differ from the benchmark, often measured as a percentage over a set period. By establishing these boundaries, the clause ensures that the portfolio manager adheres closely to the investment strategy and risk profile agreed upon, thereby providing transparency and managing expectations for both parties.
Tracking errors. Tracking errors refer to the disparity in performance between an ETF and its underlying index/assets. Tracking errors can arise due to factors such as the impact of transaction fees and expenses incurred to the ETF, changes in composition of the underlying index/assets, and the ETF manager’s replication strategy. (The common replication strategies include full replication/representative sampling and synthetic replication which are discussed in more detail below).