What is Tracking error?
Tracking error is how far a fund's return drifts from the index it is meant to copy. Fees are the main cause, along with cash held for redemptions, trading costs and small differences in what the fund actually owns. A well-run index fund keeps the gap small and steady.
Why Tracking error matters
An index fund promises the index's return minus a little, and tracking error tells you how big that little is.