Lyxor to launch ETF efficiency indicator
French ETF specialist Lyxor has developed an ETF efficiency indicator, which will compare and evaluate all ETFs according to three criteria Lyxor considers as the most relevant to calculate performance.
“ETFs have attracted a growing number of providers to the market, leaving investors faced with a difficult question: how to select the most efficient ETF. In theory, ETFs following the same index should all provide very similar investment returns as they are designed to closely replicate the indices that they track. In practice, however, these returns can vary significantly,” the firm explained.
Tracking difference versus the index, tracking error and liquidity are used in the algorithm measuring the performances of ETFs. The score given provides a way to compare funds that are linked to the same index.
The indicator aims to minimise underperformance and tracking error against the index as well as the trading cost.
In detail, Lyxor’s methodology defines a peer group based on ETFs issued by providers belonging to the top 20 ETF Issuers list. The list is made by ETFGI, an independent research and consultancy firm.
Each peer group includes the relevant Lyxor ETF share-class and the four largest ETF share-classes issued by other providers. The level of market-share accounts for at least 5% on the relative index.
Lyxor posts €48.8bn of assets under management as of 28 February 2015.