Deutsche Bank’s ETF platform, db X-trackers, provides a rather remarkable ETF tracking Euro Stoxx 50 (which is the most widely used regional blue-chip index in Europe).
What makes it remarkable is its cost - the fund's TER is 0.00%. But even more surprisingly, the passively managed ETF has been consistently outperforming its benchmark index roughly by 0.5 per cent annually since 2007.
(Annual outperformance of the db x-tracker EURO STOXX 50® ETF compared to the Index: 2007: 0.50%, 2008: 0.66%, 2009: 0.45%, 2010 year to date: 0.37%. Source: Deutsche Bank; data at 13.10.2010.)
The fund managers explain on their site that the ETF outperformance is "generated through activities such as securities lending".
Questions.
- Are there any other mechanisms at play here which might explain this kind of tracking error?
- Why the discrepancy between the fund's NAV and the index has not been eliminated by arbitrageurs?