RT Journal Article
SR Electronic
T1 Tracking Performance of Leveraged<br/>and Regular Fixed-Income ETFs
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 64
OP 90
DO 10.3905/jfi.2013.23.3.064
VO 23
IS 3
A1 Hongfei Tang
A1 Xiaoqing Eleanor Xu
YR 2013
UL https://pm-research.com/content/23/3/64.abstract
AB This article examines the tracking performance of the leveraged and regular fixed-income exchange-traded funds (FIETFs) on four major indexes: medium-term Treasury, long-term Treasury, investment-grade corporate, and high-yield corporate bond indexes. All sample FIETFs display significant tracking errors, and these tracking errors are much larger for funds on the longer maturity bond index. In addition, funds tracking corporate bond indexes show greater tracking errors than those on Treasury bond indexes. Finally, tracking errors are larger for leveraged FIETFs than for regular FIETFs and increase as the magnitude of target leverage increases for bull/bear funds. Over multiple trading days such as a week, the return deviation of a leveraged FIETF can be driven by both the net asset value (NAV) deviation due to fund management tracking error and compounding effect due to the daily rebalancing nature of LETFs. While both return deviation components are significant on a weekly basis, the size of the NAV deviation dominates that of the compounding deviation, reflecting the difficulty for fund managers to track fixed-income indexes.TOPICS: Fixed income and structured finance, exchange-traded funds and applications, performance measurement