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Smart Beta: why the TER is not enough when measuring performance

on Nov 21, 2012 at 12:54

The lessons are that due diligence needs to be performed almost as much in index funds as conventional active funds, be it in a mutual fund or an ETF structure. 

Key questions must be asked:

What is the expertise in index tracking by the provider? 

How do the funds replicate the index?

How are dilution levies charged?

What is the spread of the ETF?

The difference between a good or bad ETF tracker is relatively small but for mutual fund trackers the differences can be significant. Until there is a proper system of displaying costs, extensive due diligence is required whether analysing active or index funds.

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1 comment so far. Why not have your say?

David Cowell

Nov 21, 2012 at 16:21

So, trackers are bound to underperform the relevant index. QED

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