Advice for investing newbie: ETF not tracking index accurately

JLP295

Hi all,

I'm a newbie to investing, and have started out with a few ETFs. It seems on some days there is a large discrepancy between how the value of the ETF I'm holding changes, and the index it supposedly tracks changes, and I'd be grateful if somebody can explain why. For example: I hold "iShares NASDAQ 100 (Acc)", yesterday, according to my Trading 212 app, rose 0.32%. The actual NASDAQ-100 index rose by 0.72%. Why am I only receiving less than half of the gain that the underlying index achieved?

Thanks in advance

FIREDreamer

JLP295 said:

Hi all,

I'm a newbie to investing, and have started out with a few ETFs. It seems on some days there is a large discrepancy between how the value of the ETF I'm holding changes, and the index it supposedly tracks changes, and I'd be grateful if somebody can explain why. For example: I hold "iShares NASDAQ 100 (Acc)", yesterday, according to my Trading 212 app, rose 0.32%. The actual NASDAQ-100 index rose by 0.72%. Why am I only receiving less than half of the gain that the underlying index achieved?

Thanks in advance

Maybe sterling appreciated by 0.4% against the dollar reducing your growth in sterling terms.

kempiejon

I don't know about the iShares Nasdaq in particular but a quick glance at the graphs and NAV has followed the benchmark closely for the past few years, of course fees, frictional costs and currency as mentioned will leave the fund lagging. There's a published tracking error how does this fit with your expectation.

Why NASDAQ-100? From memory it's a quirky index if an index at all, why pick that one?

gm0

If you didn't know you were making currency FX bets. You do now.  

Comparing "what I get" with what the financial news re the indexes is generally very helpful.   There will be a gap.  Examine it.  Observe how it relates to other economic trends.  Especially GBP:USD.  

And all the money sticking to various fingers is exposed to the light.

Tracking error also exists but targets are usually <0.5% over a year or so for passives.  And they usually manage it albeit not day to day.

So index return is adjusted for tracking error i.e. what was held vs the theoretical index if perfectly replicated.

Currency FX (much bigger)

Less fund manager costs (rake) FMC (declared)

Less transaction and some other costs (not as transparent but present in the unit price and visible on the difference re the index)

= What you get gross (unit price x # units - with income reinvested, or issued separately (add it back)

Less platform fees for your account (not in the unit prices)

Less taxes (if not SIPP or ISA i.e. GIA) 

= What you really get (net)


You can remove some FX effects by buying hedged funds. At a price.  You can see and comparison shop FMC (fund manager base cost).  You can platform switch and seek cashback.  Betting on the £ declining with the UK's fortunes has been a one way bet for a long time.  3 dollars to the £ once upon a time.  Now - not so much.  But a dead cat bounce due to the orange one's bizarre actions.

The other costs. Like "foreign earnings" turning into the accounting currency of a big company - you can do nothing about.

DRS1

Once upon a time it was 4 dollars to the pound

cloud_dog

JLP295 said:

Hi all,

I'm a newbie to investing, and have started out with a few ETFs. It seems on some days there is a large discrepancy between how the value of the ETF I'm holding changes, and the index it supposedly tracks changes, and I'd be grateful if somebody can explain why. For example: I hold "iShares NASDAQ 100 (Acc)", yesterday, according to my Trading 212 app, rose 0.32%. The actual NASDAQ-100 index rose by 0.72%. Why am I only receiving less than half of the gain that the underlying index achieved?

Thanks in advance

A ) You have to factor USD/GBX exchange rate variations.

B ) The UK listed fund will stop changing value at 4:30pm.  The US exchanges will continue until 8:30pm UK time (so you will miss any increases / decreases on the exchange in the last 4 hours).  These are usually reflected in the opening price the following day, although even that cannot be counted on because if there is positive or negative sentiment in the far east exchanges (e.g. Japan) this could impact the price your fund opens at, and increase or decrease the left over change from last nights finish.

Hoenir

JLP295 said:

Why am I only receiving less than half of the gain that the underlying index achieved?

ETF's are in fact shares. The price reflects what the market is trading them at. At any given point of time. Likewise London closes at 4.30 pm. New York later at 9 pm GMT. Your ETF will be priced at market close i.e. 4.30pm.  

Marcon

JLP295 said:

Hi all,

I'm a newbie to investing, and have started out with a few ETFs. It seems on some days there is a large discrepancy between how the value of the ETF I'm holding changes, and the index it supposedly tracks changes, and I'd be grateful if somebody can explain why. For example: I hold "iShares NASDAQ 100 (Acc)", yesterday, according to my Trading 212 app, rose 0.32%. The actual NASDAQ-100 index rose by 0.72%. Why am I only receiving less than half of the gain that the underlying index achieved?

Thanks in advance

Never a bad idea to understand what you're investing in before you actually take the plunge...