When Tracking Error Fails to Measure Risk


Most of the asset management industry uses tracking error, or a measure of how closely a portfolio follows a benchmark or index, as a measure of risk. At Vontobel we don’t think it’s a useful metric. While risk control is a cornerstone of our investment approach, we are more concerned with absolute risk than tracking error. Imposing tracking error limits would dilute the benefits of the strategy we have successfully employed.

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