Investors overlooking smart beta tracking errors, say experts

Few funds have tracking-error constraints, says risk institute


Smart beta investors might be underestimating tracking errors and maximum relative drawdown in their indexes when compared with the broader market, according to industry experts. Annualised extreme tracking errors relative to a cap-weighted index can range from between 4% to 18% for different smart beta strategies, thinks Eric Shirbini, London-based global product specialist at Edhec Risk Institute's Scientific Beta index provider. "These are massive risks that people are taking and they are