Tracking difference definition

Tracking difference is a key metric in gauging the performance of exchange traded funds (ETFs), showing how a product has performed compared to its benchmark over a period of time.

Tracking difference is calculated as NAV total return vs benchmark total return: how much the value of the assets in an ETF have changed in price when compared to the group of assets they are supposed to track. It can be positive or negative, but typically will be slightly negative because ETFs which track indexes include fund expenses.

The measure of variability in an ETF’s tracking difference is called its tracking error.

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