What is the monitoring error?
tracking error is the difference in performance between portfolio and benchmark, which is used to decide on investment in this portfolio. Tracking errors always occur at a certain level because it is not possible to perfectly replicate the performance of the benchmark. The size of the error can provide important indicators of how well the portfolio is managed, as well as to illuminate market volatility and other problems that may affect portfolio performance. Usually the monitoring error is expressed in the form of a standard deviation between the return on the portfolio and the return on the benchmark.
The expected monitoring error varies depending on the type of portfolio. Investments such as the Index Fund are expected to have low errors because it is linked directly to the stock index, and therefore the difference between the fund and the index should be relatively low. Tracking errors with stock index funds are usually caused by fund management because they will eat slightly into profits. When analyzing the fund's performance, economists are cautious to useAli the same benchmark, so the analysis is consistent and the performance evaluation can be compared in previous reports. This is particularly important in situations where monitoring errors can fluctuate dramatically, because the switching of benchmarks could cover or confuse the analysis.
Investors can explore the mistakes of monitoring various investment products, and these errors are often considered to decide where to invest. Financial publications usually publish reviews of publicly available financial products, such as stock index funds that help investors take informed decisions on how they want to distribute their investment. These reviews will include the publication of monitoring and discussion errors. Financial advisors can also provide people with information about the previous and current performance of financial products they are interested in.
When evaluating the tracking error, it is important to consider mitigating circumstances. FundThat be very well managed by competent and talented staff, but in the case of the main economic shock may be impossible to control revenues. The performance of the financial product can fluctuate wildly until the economy sits down and people who manage the product have the opportunity to regroup. On the contrary, sometimes funds work well during attenuation, because their management is particularly fast on the draw, but occasionally these good performances can be attributed to more happiness than skill.