Last Updated on September 5, 2022 at 4:41 pm
This is an index fund screener based on tracking error and return difference wrt benchmarks. The screener will help a user evaluate how efficiently an index fund has tracked its underlying benchmark. It will also help a understand how tracking a midcap index or the Nifty 100, 500 is quite different from tracking the Sensex or the Nifty.
The index fund screener is a simple Excel file that can be opened in any spreadsheet utility. It has two sheets. (1) “Returns Index Funds”. This compares the trailing returns over the last 1,2,3,4,5,6,7,8 years of 40+ index funds and their corresponding benchmarks. The return difference (fund return minus index return) is listed. Actual return differences are more intuitive than tracking errors. (2) The tracking error of these 30+ index funds over the last 1,2,3,4,5,6,7,8 years is also provided.
The tracking error is simply the standard deviation of the fund minus index monthly return differences. The lower the tracking error, the more efficient the fund 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 is dependent on the duration. This screener hopes to change that.
We have already pointed out while selecting index funds, lower expenses do not mean lower tracking errors! With the TER of index funds starting to fluctuate, return differences are a better way to choose or track index funds.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
How to use the Index fund tracking error screener?
Investors should not look for funds with the lowest tracking error or lowest return difference. That would be too narrow. Instead, they should focus on funds that figure consistently in the top 5 or even top 10 in low tracking error and/or return differences.
Cast a broad net and choose one. Monthly updates of this screener will tell you how the tracking error has worsened after a TER increase.
This is a screenshot of the file. The top and bottom panels represent the two sheets available.
- If this quantity is positive, then the fund has outperformed the benchmark! This is typically a red flag. I would avoid such funds.
- The tracking error is always positive, and you can screen by the lowest tracking error.
- The fund return minus index return requires some attention. Some examples are given below.
| Fund | index | fund return minus index return | Notes |
| 0.80% | 1% | -0.20% | ok |
| -0.80% | -1% | 0.20% | not ok |
| -1.20% | -1% | -0.20% | ok |
| -3% | -1% | -2.00% | not ok |
The user will need to look for funds with a return difference greater than, say, -2% and less than 0%. This can be accomplished with the Excel filter shown below.
This is summarised in this video
What about ETFs? It is quite easy and tempting to compute the tracking error of ETFs with their NAV. However, this can be seriously misleading because their price and not NAV determine ETF returns.
So ETF tracking should be done with price data and not NAV. Everyone uses NAV for computing returns and tracking errors of ETFs, and this is useless for the investor. I am trying to compute trailing returns with price and then compare them with benchmarks. Hopefully, this should be ready soon.
Get the Index fund tracking error screener
- This screener costs Rs. 111 and is meant for individual, personal use only. The cost is only for the current month and only for the data in the sheet.
- 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.
- While freefincal will do its best to publish updated screener sheets each month, it cannot guarantee it.
- The file does not contain any buy or sell recommendations and only has the above-mentioned data.
- Enough care and effort have been put in to weed out errors. However, we cannot guarantee that the sheet is free of error.
- The buyer will have to do their own research with regard to using the information in the spreadsheet. No recommendations or assistance is included in the sheet and will not be provided separately.
- We will not provide any further help or assistance in using the sheet.
- The sheet purchased is for personal use only and should not be shared with others privately or publicly. By clicking, you agree to the terms in the important information section above.
Are you living outside India? You can pay via this Paypal link (3 USD) and send a mail to freefincal at Gmail.
Check out our active equity fund and debt fund + hybrid fund screeners!
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- 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.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr 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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), 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 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 3,000 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 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 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!
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 is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the 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 with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will 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
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published 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
This 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
This is an in-depth dive 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 300 (instant download)