Industry Voice: Why two index trackers might give very different results

Industry Voice: Why two index trackers might give very different results

Why two index trackers might give very different results

ETFs have come a long way since the first listing in Europe over a decade ago. Technological improvements, enhanced portfolio optimisation techniques and booming demand mean ETF providers have become better at keeping their promises and faithfully tracking their indices.

Performance matters in the long run

But we're not yet at the stage where ETFs are fully commoditised products. Providers tracking the same indices can still perform very differently.

Over the past year for instance, the difference between the worst and best performing Euro Stoxx 300 ETF was over 1.2%.1 This may not sound like a lot, but with the power of compounding, underperforming ETFs can significantly eat into your returns in the long run.

The table below shows just how different the performance can be, even on some of Europe's most mainstream indices. What it also shows is that in 6 out of 10 cases Lyxor ranked number 1 for tracking difference over the past year, and ranked number 2 for the remaining four indices.1

Performance summary of ETFs in Europe tracking mainstream equity indices

Index name


Index 1Y performance

Worst performing ETF

Best performing ETF

Lyxor rank

Euro Stoxx 300

Eurozone equities






Spanish equities






Italian equities





Dow Jones Industrial Average

US large caps





Russell 2000

US small caps






US non-financial large caps





MSCI Pacific ex-Japan

Developed Pacific equities ex-Japan





JPX-Nikkei 400

Japanese equities





MSCI All Country World

Global developed & emerging equities





FTSE 100

UK equities






1Source: Lyxor International Asset Management, Bloomberg. Data as at September 29, 2017. Past performance is not a reliable indicator of future results. The rationale behind the methodology is detailed in an academic paper published by Marlene Hassine, ETF strategist. The academic paper can be downloaded from SSRN: or from REPEC

2First place rank for 1 year tracking difference tied with one other ETF.

Securities lending - a boost or a burden?

Why do these performance gaps exist? Simply put, tracking an index is not as easy as it sounds. Corporate actions, tax, and the treatment of dividend payments are just some of the things ETF portfolio managers have to take into account.

One common way to help boost performance is through a robust securities lending programme. In some cases, expert management can lead to the ETF actually outperforming its index. Bear in mind though that practices may vary from provider to provider. At Lyxor for instance, we have strict caps on lending, and make no compromises when it comes to the collateral we will take as security, ensuring it is entirely consistent with the assets out on loan (i.e. bond for bonds, equities for equities). Some providers on the other hand can have up to 100% of assets out on loan, and accept stocks as collateral for their government bond ETFs - a riskier proposition.

How to pick a leader and avoid a laggard

While past performance is no guarantee of future returns, we recommend looking into the following factors when deciding which ETF is right for you.

  • Cost

The Total Expense Ratio is an annual charge that will have a material impact on tracking difference. Though it is far from the only factor that affects ETF performance, keeping your costs low is one of the easiest ways to avoid being a laggard.

  • Replication type

Depending on the underlying index, it may make sense to opt for full physical replication to keep things simple, or synthetic replication where the underlying exposure is perhaps more complex or less liquid. At Lyxor, we are pragmatic replicators so we choose what we think is best for investors.

  • Fund size and liquidity

As a rule of thumb, the bigger the fund, the more often it tends to trade, which means the bid/ask spread is more attractive. Believe it or not, this can have a bigger impact on performance than the TER.

  • Track record

It helps to choose an ETF which has been around for at least a few years, and has a decent track record.

Ultimately, one of the safest bets you can make is to choose an experienced, dependable provider. This should give you the peace of mind you need to focus more on what matters more than anything - getting your allocation right!

Find out more about ETF Efficiency at

Risk Warning

It is important for potential investors to evaluate the risks described below and in the fund prospectus which can be found on

This document is for the exclusive use of investors acting on their own account and categorized either as "eligible counterparties" or "professional clients" within the meaning of Markets in Financial Instruments Directive 2004/39/EC. It is not directed at retail clients. In Switzerland, it is directed exclusively at qualified investors. 

Some of the funds described in this communication are sub-funds of either Multi Units Luxembourg or Lyxor Index Fund, being both investment companies with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of Undertakings for Collective Investment, and have been approved and authorised by the CSSF under Part I of the Luxembourg Law of 17th December 2010 (the "2010 Law") on Undertakings for Collective Investment in accordance with provisions of the Directive 2009/65/EC (the "2009 Directive") and subject to the supervision of the Commission de Surveillance du Secteur Financier (CSSF). Alternatively, some of the funds described in this document are either (i) French FCPs (fonds commun de placement) or (ii) sub-funds of Multi Units France a French SICAV, both the French FCPs and sub-funds of Multi Units France are incorporated under the French Law and approved by the French Autorité des marchés financiers. Each fund complies with the UCITS Directive (2009/65/CE), and has been approved by the French Autorité des marchés financiers. Société Générale and Lyxor AM recommend that investors read carefully the "risk factors" section of the product's prospectus and Key Investor Information Document (KIID). The prospectus and the KIID are available in French on the website of the AMF( The prospectus in English and the KIID in the relevant local language (for all the countries referred to, in this document as a country in which a public offer of the product is authorised) are available free of charge on lyxoretf. com or upon request to [email protected] The products are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on NYSE Euronext Paris, Deutsche Boerse (Xetra) and the London Stock Exchange, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them.Updated composition of the product's investment portfolio is available on www. In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed. Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice.It is each investor's responsibility to ascertain that it is authorised to subscribe, or invest into this product. This document together with the prospectus and/or more generally any information or documents with respect to or in connection with the Fund does not constitute an offer for sale or solicitation of an offer for sale in any jurisdiction (i) in which such offer or solicitation is not authorized, (ii) in which the person making such offer or solicitation is not qualified to do so, or (iii) to any person to whom it is unlawful to make such offer or solicitation. In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a "United State Person" within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended,and/or any person not included in the definition of "Non-United States Person" within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.). No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence. This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.These funds include a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment. This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale. The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor's particular tax status,the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions.The market information displayed in this document is based on data at a given moment and may change from time to time. Authorizations: Lyxor International Asset Management (Lyxor AM) is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) and AIFM (2011/61/EU) Directives.Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority. 

Research disclaimer

This material reflects the views and opinions of the individual authors at this date and in no way the official position or advices of any kind of these authors or of Lyxor International Asset Management and thus does not engage the responsibility of Lyxor International Asset Management nor of any of its officers or employees. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, principal trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.



More on Industry Voice

Event Voice: Introducing the Wellington Global Stewards Fund at the Sustainable Investment Funds to Watch

Event Voice: Introducing the Wellington Global Stewards Fund at the Sustainable Investment Funds to Watch

Yolanda Courtines, CFA, Equity Portfolio Manager at Wellington Management
clock 27 May 2022 • 5 min read
Schroders is in 'advanced talks' with Greencoat Capital regarding an acquisition

Schroders confirms talks with Greencoat Capital

Follows media speculation

Kathleen Gallagher
clock 16 December 2021 • 1 min read
Industry Voice: The top three priorities for sustainable investing in 2022

Industry Voice: The top three priorities for sustainable investing in 2022

Jenn-Hui Tan, Head of Stewardship & Sustainable Investing, Fidelity International
clock 15 December 2021 • 5 min read