I wanted to take a look at how well exchange-traded funds track their underlying indexes. So, I put together a spreadsheet to analyze the monthly returns of the ten iShares ETFs that track the ten sectors of the Dow Jones Total Market Index against their underlying index. I used only full-year data, which began in 2002. Then, I put together this graphic:
Of the ten ETFs, the worst at capturing the index’s return was the Dow Jones Technology Index Fund (IYZ), which captured only 91.48% of its underlying index. The average ETF captured 95.32% of its index’s return. NOTE: These returns are total returns but do not include transaction costs.
For more on tracking error, check out ETF Tracking Errors: Protect Your Returns from Investopedia.