What is an ETF's tracking difference?

Tracking difference is the difference between the ETF's actual return and the return of its benchmark over a period. Even a well-run index ETF will usually lag slightly because of fees.

Other factors also matter: trading costs, index reconstitution timing, dividend handling, withholding taxes (especially for international exposure), and sampling methods.

When choosing between similar index ETFs, tracking difference can be more informative than the stated expense ratio alone. The best ETF is often the one that delivers the closest net return to the benchmark after all frictions.