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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceOver a year an index returned 7.8% and an ETF tracking it returned 7.2%. What was the tracking difference, and what is its most likely main cause?
Tracking difference = fund return − index return = 7.2% − 7.8% = −0.6 percentage points. A passive fund usually lags its index mainly because of management fees and trading costs, plus cash drag and sampling. A positive figure gets the sign wrong. Trading halts do not explain a full-year gap. −7.2 points mistakes the fund's return for the difference. Source: SIDC Module 7 Study Outline (Jul-Dec 2026) Topic 7 Exchange-traded Funds (as at October 2026).
Getting the sign of the tracking difference wrong.
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