Examining total cost of ownership reveals universal truths about investing including the fact high charges and replication costs destroy returns, especially when your ETF lags its benchmark by 33 percentage points (ppts) since inception.
This is the waking nightmare of any investor that has held the $94m Xtrackers S&P Select Frontier Swap UCITS ETF (XSFR) since inception in January 2008, with XSFR’s benchmark rising 20.4% while the ETF returned -13.3%, as at 6 June.
XSFR replicates the S&P Select Frontier index comprised of 40 of the largest and most liquid frontier market companies, weighted by market cap.
While there is a stark disparity between the ETF and its index at headline level, this tracking difference warrants some qualifications.
First, for physical exposures, sourcing the underlying assets in niche geographies can be a costly affair, however, for synthetic exposure, the…
