Decomposing tracking difference calculator

The only cost measure that catches everything.

Interactive: decomposing tracking differenceMedium

Index return % Fund return % Ongoing charge % Securities lending revenue %

Tracking difference: —
Expected from charges: —
Added by lending: —
Unexplained: —
Reading: —

A fund can genuinely beat its index: securities lending revenue and favourable withholding-tax treaties both add return the index does not receive. What matters is the unexplained residual — consistently negative and larger than the charges means something is happening in the implementation that the fee sheet does not describe. Tracking difference is a level; tracking error is its volatility, and they answer different questions.

The idea behind it

This calculator belongs to Costs & Fees, where the mechanism it computes is explained step by step, with the formula, what each input means and where the simple model stops being right. Everything is computed in your browser; nothing you type is sent anywhere.

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The same in full — six points, and why each one matters

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The examples are simplified. Worked examples use round numbers and leave out costs, spreads, taxes, collateral, settlement and market conventions that materially change real outcomes.
The models are teaching models. Formulas shown are standard textbook formulations. Institutions add calibration, live market data and credit, funding and capital adjustments — nothing here will reproduce a dealer’s quote or produce a valuation you can rely on.
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