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In its response, INVERCO – the Spanish association of collective investment schemes and pension funds – agreed on the need for more harmonisation across Europe. It said the report would be an "essential tool" for building the single market in terms of operational issues, such as the use of collateral or the calculation of tracking error. But it also called on ESMA to clarify its position respecting the disclosure of tracking error for UCIT funds.
Within its consultation paper, ESMA asks whether disclosure on tracking error should be complemented with information on the actual evolution of the fund compared with its benchmark index over a given time period.
Meanwhile, EDHEC-Risk Institute argued that the consultation paper fell short on a definition of 'passive management' that would be framed in terms of a limit on the maximum level of tracking error acceptable.
The Danish federation acknowledged that it was "challenging" to find a comprehensive definition on ETFs that did not also capture traditional UCITS. However, it also argued that, with the proposed definition, there was a "genuine risk" that listed UCITs – "which in their structure are not ETFs" – would be labelled as ETFs. "The suggested identifier is therefore too broad and will have severe implications for investors who in many circumstances will invest in a UCITS without the ETF characteristics they expect", it said.
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