Tracking Error measures how closely an ETF follows the performance of its benchmark index. A lower tracking error means the ETF is doing a better job of replicating the index it is designed to track.

Small differences can occur due to management fees, trading costs, taxes, or the way the ETF is structured. While some variation is normal, large tracking errors may indicate inefficiencies.

For ETF investors, tracking error is an important factor when comparing funds that track the same index.