Tracking difference
The gap between an index fund's performance and its index over a period.
Definition
The gap between an index fund's performance and its index over a period.
Why this concept matters
It complements the fee analysis when assessing how closely an ETF tracks its index.
How it works
The ETF return is compared with its index over exactly the same period and in the same currency.
Calculation guide : Tracking difference = fund return − index return
What to watch
The difference changes over time and may be favourable or unfavourable.
Simple example
If the index gains 8% and the ETF 7.7%, the tracking difference is −0.3 percentage points.
Example currency : United Kingdom (GBP). The reference country controls the example currency.
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