ETFs & Funds

Tracking error

The variability of a fund’s return difference versus its benchmark.

Plain-English context

Put the definition to work.

ILLUSTRATIVE EXAMPLE

A fund's return differences versus its benchmark fluctuate across periods; tracking error describes variability of those differences rather than one year's expense ratio.

IMPORTANT DISTINCTION

This is variability of return differences, not the average difference itself. Specify the observation frequency and annualization.

Further reading and verification. Examples are hypothetical, not current quotes or recommendations. Product terms, tax treatment and market rules can change. Investor.gov — ETFs

MY MARKET BOOK / FREE CHAPTER

A clearer picture starts here.