Choose index funds with low tracking error from "summary" of All About Index Funds by Richard A. Ferri
When selecting index funds for your investment portfolio, it is crucial to pay attention to the tracking error of each fund. Tracking error is the measure of how closely a fund's performance aligns with that of its benchmark index. A low tracking error indicates that the fund closely mirrors the index's performance, while a high tracking error signifies significant deviations from the benchmark. Funds with low tracking error are desirable because they offer investors a high level of confidence that their returns will closely match those of the underlying index. This is particularly important for index fund investors who prioritize consistency and predictability in their investment outcomes. By choosing funds with low tracking error, investors can effectively capture the returns of the market or asset class they are targeting. On the other hand, funds with high track...
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