ETF Tracking Error

When asking What to Buy? investors have choices. 

For instance, when buying the S&P 500  or NASDAQ 100 indexes there are at least four major flavors (there are many more) of index funds/ETFs/futures contracts. There are at least three ways to buy and hold crude oil, gold, corn and more, even, bitcoin. Each asset has an ETF and also a more traditional way of ownership. 

Which way is best? Fund managers are all tracking the same asset so it's fairly easy to compare results. Here's the S&P 500. Source for all this data is Barchart.com. 

SPY = S&P 500 SPDR 

VOO = S&P 500 ETF Vanguard

VFINX = Vanguard Index Trust 500 Index Fund

ESH23 = S&P 500 E-Mini Mar '23

ESn = S&P 500 E-Mini Nearby Roll

Pretty boring stuff. The tracking is fantastically close.

Regardless of what the index is, which you cannot buy anyway, what your $1000 CAN buy had, at most, a $17 difference no matter HOW you buy it. Vanguard and SPDR, two separate management teams, were nearly identical! And this, in a very tough down year. 

Here's the Nasdaq:

QQQ = Nasdaq QQQ Invesco ETF

NQH23 = Nasdaq 100 E-Mini Mar '23 Futures Contract

NQn = Nasdaq 100 E-Mini Nearby Roll

Again, a very boring chart but a telling table in a more tough, more down year. There is less than $30 difference on a $1000 investment in the Nasdaq 100. 

Looking at the rest we see differences in your choice of poison. 

USO, the largest crude oil ETF, handily outperforms the crude oil futures contracts. With all the work involved in CLn rolling many times in 2022, the 6% added return over the crude March 23 buy and hold seems hardly worth it. The single buy of USO on the 12/31/21 close is a no brainer.

GLD did the same, as did the tiny Tecrium CORN ETF when compared to both futures contract returns. The notable difference, for good measure, was Bitcoin. 

Right off the bat, the GBTC ETF lagged the cash Bitcoin price. By midyear the ETF recovered but then consistently priced itself below the cash. Oddly enough, not shown, is the supposed GBTC NAV which is somewhere between 20% and 50% HIGHER than its market price. Let's not confuse Bitcoin as anything other than a gambling vehicle, it has with no intrinsic value-but still a popular trade with a segment of the market. 

Conclusion: Most ETFs do a great job of tracking their underlying asset! The numbers for 2022 are indicative of prior year returns. They provide a good answer for "What to Buy?"

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information including a copy of the excel spreadsheet with these results. 

© 2023 George Rahal