Tracking error
Also called: tracking difference
How much an index fund's return varies around its index's return; tracking difference is the average gap between them.
Tracking difference comes mainly from expenses, cash holdings and trading costs. For an index fund, both tracking difference and tracking error should be low. Compare with the total-return version of the index, which includes dividends.
Learn more in these lessons
- Expense ratios and tracking errorHow much do fund costs matter, and how do you measure how well an index fund tracks?
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