Financial Terms Glossary
The most important financial terms - with simple and concise explanations.
Tracking Difference
The term tracking difference refers to the deviation in performance between an index fund or exchange-traded fund (ETF) and the performance of the index it is designed to replicate. Index funds and ETFs aim to closely match the performance of their underlying index or basket of securities. However, due to the complexity of some indices (for example, the MSCI World index includes more than 1,600 individual securities) or a lack of liquidity in the underlying securities, it is not always possible to achieve an exact 100% replication.