Before replacing a fund, check it tracks the incumbent

Advisors weighing a fund swap should first check whether the two funds have behaved alike before comparing returns, according to an InvestmentNews column.

Using realized returns and tracking error to size the difference puts comparability first. Funds with different labels, benchmarks or portfolio-construction approaches can still move together closely enough to be realistic alternatives, while some funds in the same category can diverge. A fund can outperform another and still be a poor substitute: when return paths diverge substantially, the comparison says more about different risk taking than about better implementation of the same objective.

Advisors picking a replacement for its close tracking and stronger relative results should monitor both measures, since a shift in similarity may mean the funds no longer serve the same role. Persistence is the final test.