RT Journal Article SR Electronic T1 An Empirical Analysis of Exchange-Traded Funds JF The Journal of Portfolio Management FD Institutional Investor Journals SP 112 OP 127 DO 10.3905/jpm.2012.38.4.112 VO 38 IS 4 A1 Gerald W. Buetow A1 Brian J. Henderson YR 2012 UL https://pm-research.com/content/38/4/112.abstract AB Exchange-traded funds (ETFs) provide investors with a single, tradable security for gaining exposure to an index that presumably proxies for an asset class. In the U.S. alone, ETF assets under management have grown to nearly $900 billion. Buetow and Henderson analyze ETF returns to evaluate how closely ETF prices replicate exposures to their benchmark indices. The authors’ analysis highlights practical considerations that influence index replication. On average, an ETF closely tracks its benchmark index. An ETF that tracks an index composed of less liquid securities exhibits a larger tracking error, and an ETF that tracks an index composed of less liquid, or non-U.S., securities exhibits a greater correlation (relative to the benchmark index) with a U.S. equity index, suggesting that the diversification benefits of these ETFs are less than is implied by the return properties of the benchmark index.TOPICS: Exchange-traded funds and applications, passive strategies, in portfolio management