Tracking difference in index funds

Tue, 12 May 2026 00:00:00 +0000

Tracking difference is the cumulative return of an index fund’s benchmark minus the fund’s cumulative return over a specified period, expressed in percentage points. Unlike tracking error (the standard deviation of periodic return differences), tracking difference is a single signed number that directly measures the magnitude of the fund’s under- or over-performance relative to its benchmark over the full measurement period.

Tracking difference is arguably the more investor-relevant metric for cost comparison among passive funds: it shows the actual wealth impact of owning the fund relative to the benchmark, not just the volatility of daily deviations.

Tracking Difference on WebNotes

Tracking difference in index funds