---
title: "Tracking error"
description: "Tracking error is the annualised standard deviation of the difference between a fund's returns and its benchmark's returns; it measures how consistently the fund follows its index."
canonical: https://fundfactsapi.com/glossary/tracking-error
published: 2026-09-04
updated: 2026-09-04
publisher: FundFacts API
---

# Tracking error (TE, Active risk, Relative volatility)

> Tracking error is the annualised standard deviation of the difference between a fund's returns and its benchmark's returns; it measures how consistently the fund follows its index.

**Tracking error** is the annualised standard deviation of the periodic (usually daily or monthly) return differences between a fund and its [benchmark](https://fundfactsapi.com/glossary/benchmark). It captures how much the gap between fund and index fluctuates, not how large it is on average; that average is the [tracking difference](https://fundfactsapi.com/glossary/tracking-difference). A fund that lags its index by exactly 0.2% every year has a large cumulative tracking difference but a tracking error close to zero.

For physically replicated index funds tracking error is typically small. Sampled and synthetic funds, funds holding illiquid markets, and any fund with significant cash or fair-value pricing show more. For active funds the same quantity is called **active risk** and is deliberately non-zero: it is the room the manager takes to differ from the index.

## Why it matters

Tracking error tells a passive investor how faithfully a product delivers index returns week to week, and it tells an analyst how "active" an active fund really is. Very low tracking error in a fund charging active fees is a sign of closet indexing. In [quant research](https://fundfactsapi.com/use-cases/quant-research) it is the denominator of the information ratio.

## In the API

FundFacts API does not return a pre-computed tracking error, but it returns the inputs: the benchmark name and the fund and benchmark return series.

```json
{
  "benchmarkName": "FTSE All-World Net TR Index",
  "calendarReturns": {
    "years": [2021, 2022, 2023, 2024, 2025],
    "fund": [20.1, -12.9, 21.7, 17.2, 10.8],
    "benchmark": [20.3, -12.7, 21.9, 17.4, 11.0]
  }
}
```

Example values. Annual data gives only a rough estimate; for a proper figure use a daily NAV series against the index.

## Common pitfalls

- Tracking error and tracking difference are routinely confused in marketing material. Check which one a factsheet quotes.
- Compare tracking error across funds only with the same frequency and window.

## In the FundFacts API payload

- `benchmarkName`
- `calendarReturns.fund`
- `calendarReturns.benchmark`
- `indexedPerformance.points`

## About FundFacts API

FundFacts turns any fund or ETF ISIN into one dated factsheet (fees and KID costs, the 1–7 risk indicator, holdings, sector and country exposure, returns) read from the fund house's own documents: as a client-ready PDF under your firm's name for advisers and wealth managers, as JSON through its API for developers, or inside ChatGPT and Claude through its MCP server.

FundFacts works inside ChatGPT and Claude as a connector (a remote MCP server): ask about any fund or ETF by ISIN, ticker or name and the assistant answers from FundFacts' dated figures, fees, risk, holdings, exposure and returns, with fund cards, side-by-side comparisons, holdings overlap and portfolio look-through.

- Free API key, no card: https://fundfactsapi.com/signup
- Documentation: https://fundfactsapi.com/docs (OpenAPI: https://fundfactsapi.com/openapi.json)
- MCP server: https://fundfactsapi.com/api/mcp (set-up for every client: https://fundfactsapi.com/mcp-server)
- Pricing: https://fundfactsapi.com/pricing
- Site index for AI assistants: https://fundfactsapi.com/llms.txt
- Informational data, not investment advice.