Tracking difference

Tracking difference is simply the fund's return minus the benchmark's return over a given period, usually a calendar year. A fund that returned 9.7% while its index returned 10.0% has a tracking difference of -0.3 percentage points. For an index fund or ETF the figure is usually negative and close to the TER, but it can be better or worse than the fee alone because of securities lending income, withholding tax treatment, sampling, cash drag and index rebalancing costs.

It is distinct from tracking error, which measures how variable that gap is rather than its size.

Why it matters

For a passive investor, tracking difference is the true all-in cost of holding a fund; a product with a slightly higher TER but a smaller tracking difference is cheaper in practice. Comparing several years of tracking difference across funds following the same index is one of the most useful things an ETF comparison site can show, because it uses only published data and requires no assumptions.

In the API

Calendar-year returns for the fund and its benchmark are returned as parallel arrays, so tracking difference per year is a one-line subtraction.

json
{
  "benchmarkName": "MSCI World Net Total Return USD Index",
  "calendarReturns": {
    "years": [2023, 2024, 2025],
    "fund": [23.6, 18.4, 12.1],
    "benchmark": [23.8, 18.7, 12.3]
  }
}

Example values. fund[i] - benchmark[i] gives the tracking difference for years[i]. Cumulative figures for both series are in cumulativePerformance.

Common pitfalls

• Make sure the benchmark is the net total return version of the index; comparing against a price index overstates the fund's shortfall.
• Currency matters: compare fund and index in the same currency, and note that hedged share classes track a hedged index.