Tracking difference
The actual return gap between an ETF and its index over a period, usually one year.
In short
As of 8 October 2026The tracking difference is the actual return gap between an ETF and its index, usually over a calendar year. It includes all costs and income inside the fund, so it is often more telling than the TER. If the index rises 10.00 % and the ETF 9.85 %, it is -0.15 %. It can be smaller than the TER or even positive.
An ETF is meant to track its index as closely as possible. The tracking difference shows how well that worked: ETF return minus index return, usually for a calendar year. A negative value means the ETF lagged the index.
It is often more telling than the TER because it includes every effect: running costs, trading costs inside the fund, taxes on dividends, but also income from securities lending. That is why it can be smaller than the TER and sometimes even positive. The type of replication matters as well.
Example: the index rises 10.00 % in a year and the ETF 9.85 %. The tracking difference is -0.15 %. With a TER of 0.20 %, the ETF did better than its costs suggest. What to look for when choosing is covered in the chapter ETF or single stock.
Sources
As of 8 October 2026 · Educational content, not investment or tax advice.