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ETF toolkit / Metrics glossary

ETF metrics glossary: what the numbers are really trying to tell you

Metrics are only useful when they answer a real portfolio question. This glossary keeps the definitions tied to decisions rather than letting jargon float around detached from the portfolio job.

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Core metrics

Risk

Beta

How sensitive an ETF is to broad equity-market moves. Beta is useful for portfolio balance, not as a quality score.

Risk-adjusted return

Sharpe ratio

Return per unit of total volatility. Helpful for comparing broad funds with similar jobs, less useful across very different sleeves.

Downside focus

Sortino ratio

Like Sharpe, but cares more about bad volatility than total volatility. Useful when the drawdown profile matters more than the wiggles.

Cost

OCF

Ongoing Charges Figure. A good starting cost metric, but not the whole ownership cost once spread and tracking difference matter.

Structure and implementation terms

Tracking

Tracking difference

The real gap between the fund return and the index return. In practice this often matters more than obsessing over a tiny OCF difference.

Tracking

Tracking error

How consistently the fund deviates from the benchmark over time. Relevant when precision is the job.

Structure

Physical vs synthetic

Physical funds hold the assets directly or through sampling. Synthetic funds use swaps. Neither is automatically bad; the question is whether you understand the structure.

Currency

Hedged vs unhedged

Hedging changes the ride. It is not a free lunch: you are trading currency noise for hedging cost and a different return path.

Cashflow

Accumulating vs distributing

Share-class choice changes cashflow handling, tax admin and rebalancing convenience, even when the underlying portfolio is similar.

Fund scale

AUM

Assets under management. Bigger is not always better, but tiny specialist funds deserve a closure-risk check.

Cost and trading metrics

The headline OCF is only part of what owning an ETF costs. These are the frictions that show up on the contract note or quietly inside the fund's return.

Trading cost

Bid–offer spread

The gap between the buy (offer) and sell (bid) price on-exchange. It is a one-off cost on every trade. Tiny on a large, liquid fund; on a niche fund it can quietly exceed a whole year's OCF, so it matters most if you trade often or hold in small size.

Pricing

Premium / discount to NAV

An ETF's market price can drift slightly above (premium) or below (discount) the net asset value of the underlying holdings. Authorised participants normally arbitrage this away, but it can widen in stressed markets or for funds holding illiquid assets — a sign to trade with limit orders, not at market.

Total cost

Total cost of ownership

OCF plus the spread you pay, plus or minus tracking difference, plus any platform fee. Two funds with identical OCFs can cost very different amounts to own once these are added up. This is the number that actually leaves your pocket.

Income source

Securities lending

Many physical ETFs lend out holdings to earn extra income, some of which is returned to the fund and can improve tracking. Generally collateralised and low-risk, but not zero-risk. The annual report shows whether lending is used and how the revenue is split between fund and manager.

Income (stated)

Distribution yield

Income actually paid out over the past 12 months as a percentage of price. On a distributing share class this is cash in hand; on an accumulating class it is reinvested. Useful only when income is the real job — never read a high yield as proof of a better fund.

Income (look-through)

Underlying yield

The income the fund's holdings generate before charges, sometimes shown as the SEC or running yield on bond funds. Comparing it with the distribution yield reveals how much cost and timing are eroding the income that actually reaches you.

Risk, return and bond-specific metrics

Numbers that describe how bumpy the ride has been and how a fund might behave when conditions change. All are backward-looking unless stated otherwise.

Volatility

Volatility / standard deviation

How widely returns have swung around their average, usually annualised. Higher means a rougher ride. It treats upside and downside swings equally, which is why downside-focused measures exist alongside it.

Worst case

Maximum drawdown

The largest peak-to-trough fall the fund has suffered before recovering. A blunt but honest gauge of the worst pain an investor would have had to sit through — often more decision-useful than volatility, because it is the loss people actually panic-sell into.

Regulated indicator

Summary Risk Indicator (SRI)

The 1-to-7 risk score on a fund’s key information document, driven mainly by how much its price has moved in the past (UCITS key investor information documents use a similar 1-to-7 scale). It ranks funds against each other; it is not a forecast of loss, and it can understate tail risk after calm years. The FCA is replacing these documents with a new “product summary” under its consumer composite investments rules: firms could switch from 6 April 2026 and must do so by 8 June 2027, so the risk information you see may change format.

Bond risk

Duration

How sensitive a bond ETF's price is to interest-rate moves. A duration of 7 implies roughly a 7% price fall if rates rise one percentage point (and a similar rise if they fall). The single most important number on a bond factsheet.

Bond income

Yield to maturity

The total annualised return a bond fund would deliver if every holding were held to maturity at today's prices, before charges. A better guide to expected bond return than the distribution yield alone.

Diversification

Correlation

How closely two holdings move together, from +1 (in lockstep) to −1 (opposite). Genuine ballast comes from sleeves with low or negative correlation to equities — though, as 2022 showed, bonds and equities can fall together.

Structure, domicile and UK tax terms

Labels that are not really performance metrics but decide how a UK investor is taxed and protected. Skipping these is where lazy ticker-level comparisons go wrong.

Replication

Replication method

Physical full replication holds every constituent; physical sampling holds a representative subset; synthetic uses a swap with a bank. Synthetic adds counterparty risk but can reach awkward markets cheaply. The question is whether you understand the structure you are buying.

Tax (location)

Domicile

Where the fund is legally registered. Most ETFs sold to UK investors are domiciled in Ireland or Luxembourg. Under the US–Ireland tax treaty, US dividends paid to an Irish-domiciled fund normally suffer 15% US withholding tax rather than the standard 30% non-treaty rate. That tax is lost inside the fund in every wrapper, including an ISA or SIPP; it is invisible on the chart, but it compounds.

Regulation

UCITS

The EU fund framework that most ETFs sold to UK retail investors are set up under, with rules on diversification, liquidity and investor documents. Irish and Luxembourg UCITS funds need FCA recognition to be marketed to the UK public; the fund’s documents and the platform show whether a particular fund is available to you.

Tax (HMRC)

UK Reporting Status

Status HMRC gives an offshore fund that reports its income to investors each year. Gains on a reporting fund are taxed as capital gains (with the £3,000 annual exempt amount and the 18% or 24% rates in 2026/27). Gains on a non-reporting fund are taxed as income (an “offshore income gain”), usually at higher rates. HMRC publishes a list of approved reporting funds; check it before holding a fund in a general investment account.

Cashflow

Excess reportable income

On a reporting fund, the part of the fund’s reportable income that was not paid out (typical of accumulating share classes, though it can arise on distributing ones too). In a general investment account HMRC treats it as an extra distribution, so you may owe tax even though no cash was paid; it is taxed as a dividend, or as interest for a fund mainly invested in bonds. It is sheltered inside an ISA or SIPP. The fund publishes the figure in its annual report to investors, and amounts you have been taxed on are added to your base cost when you sell.

Share class

Currency-hedged share class

A version of the same fund that strips out currency movement between the assets and your base currency. It removes a source of volatility (valuable on bond sleeves) but carries a small hedging cost and a different return path. Not a free lunch.

How to use this glossary: match the metric to the question. For a long-term equity core, lead with index, domicile and tracking difference. For a bond sleeve, lead with duration and yield to maturity. For anything you trade often or hold outside a wrapper, lead with spread, fund size and reporting status.

Sources for the tax and regulation entries

Checked on 3 October 2026. The market metrics above are standard definitions; the tax and regulatory entries rely on these primary sources.

When the numbers stop matching theory

The metrics on this glossary are clean definitions. In practice, your tracker fund will diverge from the index it tracks. This guide explains the seven mechanical reasons that gap appears, and which ones you can avoid.

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