Why does the price of a tracker follow the underlying index?
The price of the tracker follows the underlying index because there is a strong correlation between the index and the tracker. There are two reasons for this. · The fund manager ensures that the invested capital is always in line with the composition of the reference index. · The creation and redemption process allows arbitrage to be used to eliminate differences between the tracker price and the net asset value (i.e. the theoretical value of the tracker). As a result, the difference in performance between a tracker and the reference index is small. However, minor differences can occur due to the level of supply or demand on the market, or may be due to withheld transaction fees and accumulated dividends. Some trackers differ more sharply from the reference index because they reinvest received dividends and other cash amounts.
