ETF tracking error screener Sep 2022

Published: September 12, 2022 at 6:00 am

This is an ETF screener based on tracking errors and tracking differences (ETF return minus index return). The screener will help a user evaluate how efficiently an ETF has tracked its underlying benchmark.

The tracking error is simply the ETF’s standard deviation minus index monthly return differences. The lower the tracking error, the more efficient the ETF is in following the index. Unlike returns, tracking error data over multiple durations is hard to find.  Also, many investors do not seem to appreciate that the tracking error depends on the duration. This screener hopes to change that.

In an index fund, there is only the NAV. In an ETF, the units are typically traded during market hours like stock with an associated price determined by supply and demand. An AMC-appointed intermediary is supposed to keep the price close to the NAV, but often this does not happen.

The fund manager must ensure the NAV tracks the benchmark in an index fund. In an ETF,  not only should the NAV track the benchmark, but the price also should track the benchmark (or equivalently track the NAV).

ETF tracking errors are usually reported using the NAV. The tracking error or tracking difference information does not tell us if the price follows the NAV closely. We will have to guess this by looking at trading volumes. This screener will help change that.


Build a complete financial plan with our Robo Advisory Tool. More than 1000 investors and financial advisors use it!
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)


New Tool! => Track your mutual funds and stocks investments with this Google Sheet!

As we have repeatedly shown, tracking NAV-based tracking errors seriously is a big mistake. See, for example, Conventional ETF tracking errors can be misleading here is how to correct them. This link also has examples of how the tracking error is computed.

We buy and sell ETF units at market price; therefore, the price should be used to compute tracking errors and tracking differences. An ETF with a low NAV-based tracking error can have a high price-based tracking error. This means that the ETF price is not tracking the NAV properly.

By measuring the tracking error with the ETF price, we can instantly know how efficiently the ETF is tracking the benchmark. Or, in other words, how efficient the AMC-appointed intermediary is in arbitraging out the price-nav differences. An efficient intermediary can help minimise price-nav deviations even in low-AUM ETFs. Also, high AUM does not mean price-NAV deviations are automatically low in the ETF.

Many investors believe ETFs are better than index funds because of their low expense ratios. This is incorrect. Only an ETF with low price-NAV deviations can match up to an index fund. The price-based tracking error will help us search for such ETFs. See ETFs vs Index Funds: Stop assuming lower expenses equals higher returns!

This screener can be used to short-list “good ETFs” using the price-based tracking error.

Features of the ETF tracking error screener

  • A total of 47 ETFs are featured, covering Nifty 50, Nifty 100, Sensex, Nifty Next 50 and gold. Depending on user interests, additional ETFs will be added in the coming months.
  • Presented in a simple Excel file that can be opened in any spreadsheet utility with three sheets.
  • Sheet 1: ETF Nav vs Index: The ETF tracking errors and returns (based on NAV) and benchmarks over the last 1,2,3,4 and 5 years are presented with the return difference: ETF NAV return minus benchmark.
  • Sheet 2: ETF Price vs Index: The ETF tracking errors and returns (based on price) and benchmarks over the last 1,2,3,4 and 5 years are presented with the return difference: ETF price return minus benchmark. A screenshot of the two sheets is shown below.
Screenshot of the freefincal ETF tracking error screener
Screenshot of the freefincal ETF tracking error screener
  • Sheet 3: ETF NAV vs ETF Price: A tracking error between the NAV and price is defined and listed over the last 1,2,3,4, and 5 years.The return difference: ETF NAV return minus ETF price return is also provided. This is provided on an experimental basis. The first sheets alone should suffice for efficient screening.
  • Low cost; No subscription is necessary! Each month’s screener costs Rs. 200. Users can buy it as and when possible.
  • Inside, you get discounted links to our two courses: How to get people to pay for your skills (aka earn from skills) and the lectures on goal-based portfolio management.

How to use the ETF tracking error screener?

  • Look for ETFs with consistently low price-based and NAV-based tracking errors. There should not be too much difference between the two quantities.
  • Also, look for ETFs with consistently low tracking differences. That is, ETF price return minus index return should be small and ETF NAV return minus index should also be small.
  • Consistent here means over the last 1,2,3,4 and 5 years.
  • Note: price-based tracking return differences can be positive or negative. As long as they are small, it is ‘ok’.
  • If a price-based tracking error or ETF price return minus index return is abnormally high, it could mean the price has shot up or down by a huge amount. Check at Value Research how often such deviations occur and how long they last. Any deviation that takes too long to correct is a red flag. Frequent deviations are also a red flag.
  • Do not look for the “best ETF”. Cast a wide net and be satisfied with reasonably consistent performance.

Get the ETF tracking error screener!

  1. This screener costs Rs. 200 and is meant for individual, personal use only.  The cost is only for the current month and the data in the sheet.
  2. Inside, you get discounted links to our two courses: How to get people to pay for your skills (aka earn from skills) and the lectures on goal-based portfolio management.
  3. While freefincal will do its best to publish updated screener sheets each month, it cannot guarantee it.
  4. The file contains no buy or sell recommendations and only has the abovementioned data.
  5. Enough care and effort have been put in to weed out errors. However, we cannot guarantee that the sheet is free of error.
  6. The buyer will have to do their own research concerning using the information in the spreadsheet. No recommendations or assistance are included in the sheet and will not be provided separately.
  7. We will not provide any further help or assistance in using the sheet.
  8. The sheet purchased is for personal use only and should not be shared with others privately or publicly. It is understood that you agree to these terms and conditions by clicking the below link.

Click here to pay Rs. 200 and download (instantly) the Sep 2022 Freefincal ETF Tracking Error Screener.

Are you living outside India? Send a mail to freefincal at Gmail dot com to get the purchase link (cost =  USD)

Check out our active equity fund and debt fund + hybrid fund screeners!

Do share this article with your friends using the buttons below.

Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
  Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)