WHY PAS­SIVE FUNDS CAN UN­DER­PER­FORM A BENCH­MARK

Shares - - FUNDS - Source: UBS

1

They ex­pe­ri­ence track­ing er­ror as they can­not per­fectly match the per­for­mance of the bench­mark. This track­ing er­ror is great­est in pe­ri­ods where con­stituents are added and/or re­moved from a bench­mark. 2

Pas­sive funds charge fees to cover the ad­min­is­tra­tion of the fund’s as­sets, trans­ac­tional costs and man­age­ment fees. As a re­sult, in a per­fect world, where there is no track­ing er­ror, pas­sive funds will al­ways un­der­per­form their bench­mark due to these costs.

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