Stories
Why ETFs Tracking the Same Index Can Deliver Different Returns
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CNBC TV18•19-10-2026, 17:52
Why ETFs Tracking the Same Index Can Deliver Different Returns
- •Two ETFs tracking the same index can yield different returns due to differences in expenses, portfolio management, and trading prices.
- •Tracking difference measures the gap between an ETF's return and its benchmark over a specified period, impacting long-term wealth.
- •Tracking error assesses the stability and variability of the difference between an ETF's returns and its benchmark.
- •A lower expense ratio is an important starting point, but factors like cash holdings, dividend timing, and rebalancing costs also affect performance.
- •Market prices, bid-ask spreads, premiums or discounts to iNAV, and fund liquidity dictate the actual returns realized by investors.
Key Questions Answered
ETFs tracking the same index can yield different returns due to variations in operating expenses, portfolio management, cash holdings, dividend timing, rebalancing costs, and trading prices on stock exchanges.
Tracking difference measures the actual gap between an ETF's return and its benchmark over a specific period, reflecting underperformance or outperformance. In contrast, tracking error measures the variability or stability of that performance gap over time rather than the total size of the underperformance.
An expense ratio only covers annual operating costs and fails to capture other factors affecting returns like cash holdings, dividend timing, rebalancing costs, bid-ask spreads, and whether units trade at a premium or discount.
