Learn how tracking error works in Ethic portfolios, what drives it, and why it can be a useful tool for setting expectations around personalization, risk, and benchmark-relative performance.
Tracking error can be one of the most important — and misunderstood — concepts in personalized investing. Our new white paper, Understanding Tracking Error in Ethic Portfolios, explains what tracking error is, how Ethic measures it, and why it matters when portfolios are customized around client values, tax considerations, and other investment constraints.
The paper outlines the basics of tracking error as a measure of how much a portfolio’s returns may differ from its benchmark over time, then explores the two main ways it is evaluated: ex-ante (predicted) and ex-post (realized). It also walks through some of the key drivers of tracking error, including sector exclusions, factor tilts, tax management, security restrictions, and the practical realities of portfolio customization.
For advisors and consultants, the white paper is a helpful tool for conversations about framing. Tracking error can help set expectations, explain benchmark-relative outcomes, and connect portfolio dispersion back to intentional design choices driven by a client’s priorities.
Download the white paper to get a clearer understanding of how Ethic approaches tracking error and how to speak about it more effectively in client conversations.
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Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.
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