Portfolio

Tracking Difference

The tracking difference is the actual return gap between an ETF and the index it tracks, and unlike the TER it also captures costs and income such as securities lending.

Tracking difference is the return gap between an ETF and its benchmark over the same period. A meaningful comparison requires matching currency, index version and treatment of distributions.

The sign depends on the calculation. With ETF return minus index return, a positive value means the ETF outperformed the index. With the reverse calculation, index minus ETF, a positive value means a return shortfall. Always check the data source's definition.

Ongoing costs, internal transactions, taxes, replication methods and securities-lending income can affect the difference. Several years provide more context than one; historical differences do not predict future ones.

The terms in practice.

Understanding ETF costs: TER, tracking difference and hidden fees

Why the total expense ratio is only half the truth, and the tracking difference the more honest figure.

Tracking Difference

The terms in practice.

Understanding ETF costs: TER, tracking difference and hidden fees

From knowledge to clarity