Glossary
What is tracking error on an ETF?
Updated Reviewed quarterly
Tracking error measures how closely an index ETF follows its benchmark. A tracking error of a few basis points per year means the fund delivers index returns minus the expense ratio. Higher tracking error suggests fund construction or sampling issues. Active ETFs (e.g. JEPI, ARKK) don't track an index, so this metric doesn't apply.
For NZ investors picking between index ETFs that track the same benchmark (e.g. SPY, VOO, IVV all track the S&P 500), tracking error is a tiebreaker after expense ratio. Vanguard and BlackRock typically have very low tracking error (1–5 basis points); newer or thinly-traded ETFs sometimes have wider tracking error. Issuer fact sheets publish 1Y, 3Y and 5Y tracking error.
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