Performance drag

Performance Drag

A situation in which an index fund does not perform exactly the same as the index it is supposed to follow. Performance drag occurs when the fund does not precisely track the underlying index; that is, it occurs when the fund includes other investments. Commonly, performance drag can occur when the money manager allocates part of the fund to cash and cash equivalent to improve its liquidity. However, high performance drag may indicate that the index fund is not much of an index fund at all. See also: Closet index fund.

Performance drag.

Performance drag describes a situation in which an investment -- such as an index mutual fund or exchange traded fund (ETF) -- lags behind the index that it is designed to track. Performance drag can occur for a variety of reasons.

One example, known as cash drag, occurs when a fund allocates a portion of its portfolio to cash, causing its performance to underperform its underlying index. Cash drag may especially affect open-end index funds, which may need cash to buy back shares that investors want to sell.

Performance drag is illustrated by a fund's tracking error -- a calculation of how much an index-tracking investment deviates from its underlying index.

References in periodicals archive ?
With return on equity (ROE) being a key performance factor, too much "E" in the ROE equation (E is the denominator) creates a performance drag in the calculation.
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The primary and secondary write I/Os are completely independent of each other, eliminating the possibility of a performance drag on the application.
Unfortunately, most companies are working with outdated policies that limit this access, resulting in as much as $20 million in performance drag annually for large organizations.
May 18 /PRNewswire/ -- P&A Retirement Plan Services breaks the ETF barrier that has long existed inside employer sponsored retirement plans by announcing a program that finally allows participants of defined contribution plans to buy and sell ETFs like mutual funds, without the performance drag associated with other ETF offerings.
Unlike client-level encryption software products, Unitrends' integrated InCrypt solution creates no overhead or performance drag on the server being protected.
Its tremendous flexibility helps individual funds improve performance by remaining fully invested, or keeping cash on hand, without suffering a performance drag, and by reducing number of trades, transaction costs and taxable events.
We are very excited to put the 302SC long block engine into the drag racing circuit this year under the hood of the Saleen SpeedLab/JDM Engineering performance drag car", states Michael Lingo, Vice President of Operations & General Manager - Aftermarket Division, "We are planning to place the vehicle on display throughout the season; proving the durability and reliability of the Saleen motors in the most demanding environment imaginable.
Having witnessed the common performance drag of server-side products, BBH employed its standard, cautious approach to implementing EdgeSight.
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The costs of these "one-night stands" -- higher trading expenses and the performance drag of excess cash -- were borne not by Wilshire or the fund managers but by the mutual funds' loyal long-term investors.
TCI, located in Ashland, Mississippi, is the recognized leader in automatic transmission and performance torque converter product lines for the high performance drag racing, circle track, and street product markets.
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