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Lyxor launches ETF Efficiency Indicator


Lyxor has developed a proprietary “ETF Efficiency Indicator”, which can be used to compare and evaluate all ETFs, in accordance with three criteria Lyxor sees as the most relevant to calculate performance. 

In theory, ETFs following the same index should all provide very similar investment returns as they are designed to closely replicate the indices that they track. In practice, however, these returns can vary significantly.

The ETF Efficiency Indicator looks at an ETF’s tracking difference, tracking error and the key metric of secondary market liquidity and combines this into a single score. This score provides a straight forward way to compare funds that are linked to the same index and it is based on observable quantitative criteria.

The aim of the ETF Efficiency Indicator is to answer three key objectives:
Minimise underperformance versus the index (or maximise outperformance)
Minimise the tracking error versus the index
Minimise the trading cost (the bid/ask or liquidity spread)

The ETF Efficiency Indicator was first proposed in 2013 by Thierry Roncalli, head of research & development at Lyxor and professor of Finance at the Evry University, and Marlene Hassine, ETF research at Lyxor and member of the SFAF, in an academic publication entitled “Measuring Performance of Exchange Traded Funds”.

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