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.
