Tracking difference and error indicate how well an index fund follows its intended path. Here's how to avoid common analytical mistakes. Download the report now.

SPDR Barclays Capital High Yield Bond ETF (JNK): ETFs tracking high-yield debt are often viewed as fertile ground for elevated tracking error, and that scenario is not limited to corporate debt.

Tracking error, the amount by which an ETF's returns deviate from its benchmark index, is a fact of life and an often ignored fact at that.

However, these ETFs have shown significant tracking errors to their underlying asset, MicroStrategy, highlighting potential risks for investors.

Some asset owners, including CalPERS, are reconsidering how they use tracking error in measuring risk.

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Important Examples of factors considered when selecting an appropriate benchmark include the region, industry, volatility, market capitalization, and liquidity of the securities in question.