Financial metrics2 min read
Tracking differenceGerman: Tracking Difference
Tracking difference is the gap between an index-tracking fund’s return and its benchmark return over the same period.
In plain language
Fees, withholding taxes, replication methods and securities lending can affect the gap. Sign conventions vary: check whether the calculation uses fund minus index or index minus fund.
Let’s make it concrete
An index returns 8% and a fund 7.8%. Under fund minus index, tracking difference is −0.2 percentage points.
Simplified example for illustration.Worth understanding
Tracking difference is not tracking error. The latter measures variability in return deviations rather than their average size.
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For further learning and reference:
Financial education for orientation. No individual investment, tax or legal advice.
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