Conventional Mutual Index Funds vs. Exchange Traded Funds on European Markets: Comparison in terms of tracking performance

This thesis aims to determine whether or not European exchange-traded funds are better than European mutual index funds in the track of their benchmark index. To do so, we made a theoretical overview of what are exchange-traded funds and mutual index funds. We looked at their history, similarities, differences, and how they are traded. Besides, we made an econometrical analysis based on eight exchange-traded funds, eight mutual index funds, and two benchmark indexes (FTSE 100 and Euro Stoxx 50) for the period between the 2nd January 2017 and the 2nd January 2020. Furthermore, we ensured that they were all European funds by looking at the place where they are quoted and verifying that they were all following the UCITS directive. We computed each fund's average daily return, total return, volatility level, and tracking error through this analysis. We discovered that sometimes mutual index funds and exchange-traded funds were able to outperform or underperform their benchmark index. Concerning the tracking error, we estimated it based on three different methods (TE1, TE2, and TE3). We found out that exchange-traded funds had smaller tracking errors than mutual index funds. As a result, we concluded that exchange-traded funds were better in tracking their benchmark index.