Tracking error measures how closely a fund or ETF follows its benchmark index. It's the standard deviation of the difference between the fund's returns and the benchmark's returns. Lower tracking error means better index replication.
Tracking Error = Standard Deviation of (Fund Return - Benchmark Return) over time
An S&P 500 ETF with 0.02% tracking error closely mirrors the index. A tracking error of 2% suggests significant deviation — the fund may use sampling rather than full replication.
AllInvestView compares your portfolio against benchmarks on the analytics page. Read our ETF guide for more on fund selection.