I’m a newbie to investing, and have started out with a few ETFs. It seems on some days there is a large discrepancy between how the value of the ETF I’m holding changes, and the index it supposedly tracks changes, and I’d be grateful if somebody can explain why. For example: I hold “iShares NASDAQ 100 (Acc)”, yesterday, according to my Trading 212 app, rose 0.32%. The actual NASDAQ-100 index rose by 0.72%. Why am I only receiving less than half of the gain that the underlying index achieved?
What you’ve observerd is called “tracking error” or “tracking difference”
It’s a combination of factors:
Exchange Rate Fluctuations
The NASDAQ-100 index is priced in US Dollars (USD).
Your iShares NASDAQ 100 (Acc) ETF, via Trading 212, is denominated in GBP as it’s traded on LSE.
Trading Hours
The NASDAQ-100 index is calculated based on the prices of its constituent stocks trading on the NASDAQ exchange in the US (typically 9:30 AM to 4:00 PM ET).
Your iShares ETF trades on LSE, which has different trading hours (e.g., 8:00 AM to 4:30 PM GMT/BST).
The “daily change” reported by your app might be based on the ETF’s closing price on the LSE, which might not perfectly align with the NASDAQ-100’s official daily close, or might reflect movements after the LSE closes but before the NASDAQ closes (or vice-versa).
Replication Method
Some ETFs use “full physical replication,” meaning they hold every single stock in the index in the same proportion.
Others use “sampling” (or “optimised sampling”), where they hold a representative subset of the index’s securities to minimize transaction costs, especially for very large or illiquid indices. This can introduce small tracking differences.
reply above is very good, I just want to add a line you might need the most: in the long run their return should be very close to the index they tracked so you dont need to worry about it.