Tracking Difference Calculator NZ 2026/27
Index funds are compared on their management fee because it is the number everyone publishes, and it is not the number that determines what the fund costs you. A fund's job is to deliver its index, and the honest measure of its cost is how far short of that index it actually landed. That shortfall is the tracking difference, and it is almost always larger than the fee, because the fee is only one of several things standing between the index and your return. Trading costs when the index rebalances, cash held back for redemptions that earns nothing, sampling where a fund holds a subset of constituents rather than all of them, foreign withholding tax on dividends that cannot be fully recovered, and the spread paid on every purchase all reduce the return and none of them appear in a fee table. Occasionally the effect runs the other way, because revenue from lending the fund's securities can offset part of the cost, and a fund that beats its index after fees is doing so for a reason worth understanding. This page separates the two figures. It takes the fund's return and its index's return over the same period, works out the total cost of ownership, and shows how much of it the published fee actually explains. Then it does the same for a second fund, which is where the exercise usually pays for itself: the fund with the lower fee frequently has the larger shortfall, and picking on the advertised number picks the more expensive product.
Total cost of ownership = the size of that shortfall. It is what holding the fund actually cost, and it captures everything rather than only the published fee.
Beyond the stated fee = total cost of ownership − stated fee. This is the part that appears in no fee comparison.
Cost ratio = total cost of ownership / stated fee. A ratio of 1.00x means the fee explains the whole shortfall; above that, it does not.
Projection applies each fund's measured total cost of ownership to an assumed future index return, so the fund returns index less its own real cost. The fee-only column applies the stated fee instead, to show what a fee comparison would have led you to expect.
Returns must be after fees on the fund side, which is how factsheets report them, and the index figure must be the benchmark the fund actually tracks, in the same currency and on the same hedged or unhedged basis. A mismatch measures the currency rather than the fund.
Tracking difference is not tracking error. Tracking difference is the average gap and is what costs you money. Tracking error is the volatility of that gap and describes consistency, not cost.
Excluded: the effect of tax in your own hands, brokerage on buying the fund itself, and any bid-ask spread on entry or exit.
All figures are user-entered. No fund is named, ranked or recommended, and the defaults are illustrative rather than a real product.
Not financial advice. Last verified: .
Where the shortfall comes from
| Fund A | Fund B | |
|---|---|---|
| Index return | 9.20% | 9.20% |
| Fund return after fees | 8.75% | 8.60% |
| Tracking difference | -0.45% | -0.60% |
| Stated fee | 0.30% | 0.20% |
| Beyond the stated fee | 0.15% | 0.40% |
| Total cost of ownership | 0.45% | 0.60% |
| Real cost as a multiple of the fee | 1.50x | 3.00x |
The bottom two rows are the ones that matter. Fund B charges a third less and costs a third more.
What each fund costs you in dollars
| A year on your holding | Fund A | Fund B |
|---|---|---|
| What the stated fee implies | $150.00 | $100.00 |
| What it actually cost | $225.00 | $300.00 |
| The part no fee table shows | $75.00 | $200.00 |
| Which looks cheaper on fees | Fund B | |
| Which is cheaper to own | Fund A |
On these figures the fee comparison and the cost comparison point at different funds, which is the situation this page exists to catch.
What choosing on the wrong measure costs
| After | Fund A | Fund B | Difference | What fees alone predicted |
|---|---|---|---|---|
| 1 year | $53,275.00 | $53,200.00 | $75.00 | -$50.00 |
| 5 years | $68,665.29 | $68,183.32 | $481.97 | -$324.65 |
| 10 years | $94,298.45 | $92,979.30 | $1,319.15 | -$900.08 |
| 20 years | $177,843.95 | $172,903.01 | $4,940.93 | -$3,459.36 |
The final column is what a fee comparison would have told you the difference was. It points the wrong way at every horizon.
The gap between the fee and the truth, over time
| Fund A after | At its real cost | If the fee were the whole cost | The difference |
|---|---|---|---|
| 1 year | $53,275.00 | $53,350.00 | $75.00 |
| 5 years | $68,665.29 | $69,149.99 | $484.69 |
| 10 years | $94,298.45 | $95,634.41 | $1,335.97 |
| 20 years | $177,843.95 | $182,918.82 | $5,074.87 |
Believing the fee was the whole cost would leave you expecting $5,074.87 more than the fund is on track to deliver.
The Fee Is Not The Cost
An index fund exists to deliver its index. Whatever it fails to deliver is what it cost you, regardless of which line item the money went to.
On the worked example the fund charges 0.30% and landed 0.45% behind its index. The real cost is 1.50x the advertised one, and the extra 0.15% is $75.00 a year on $50,000.00 that appears in no comparison table anywhere.
Worked Example: Two Funds, One Index
The index returned 9.20%.
Fund A charges 0.30% and returned 8.75%, a shortfall of 0.45%. The fee explains two thirds of it.
Fund B charges 0.20% and returned 8.60%, a shortfall of 0.60%. The fee explains a third of it, so the real cost is 3.00x the stated one.
Fund B wins the fee comparison by 0.10% and loses the cost comparison by 0.15%. Over twenty years on $50,000.00 that is $4,940.93.
Where The Rest Of The Money Goes
Five things sit between an index and a fund's return, and only one of them is the fee.
Trading costs. Indices change their constituents, and every change forces the fund to trade. Those costs come out of the return.
Cash drag. A fund holding cash for redemptions has money not earning the index return.
Sampling. Funds tracking broad indices often hold a representative subset rather than every constituent, which is cheaper to run and does not track perfectly.
Withholding tax. Foreign dividends can be taxed at source in ways the fund cannot fully recover, and the index calculation may assume a recovery the fund does not get.
Spreads. Every purchase and sale crosses a bid-ask spread that no fee statement shows.
Sometimes It Runs The Other Way
A tracking difference smaller than the fee is not an error. It means the fund is recovering costs somewhere, usually by lending out its securities and keeping part of the revenue, or through a tax position better than the index assumes.
A fund that consistently beats its index after fees is worth understanding rather than distrusting. Securities lending carries counterparty risk that is generally small and is not zero, and the disclosure is in the fund documents.
Either way it is measurable, which is more than can be said for a fee comparison.
Difference Is Not Error
Two terms get used interchangeably and mean different things.
Tracking difference is the average gap between the fund and the index. It is a cost, it is persistent, and it is what this page measures.
Tracking error is how much that gap moves about from period to period. It measures consistency, not cost. A fund can have a large tracking error and cost you nothing on average, or a tiny tracking error while reliably costing 0.60% a year.
If you are choosing a fund to hold for decades, the difference is the one that matters.
How To Use This Properly
Run it on the one, three and five year figures separately rather than on one period. A single year contains a lot of randomness from the timing of index changes and money flowing in and out.
Check that the index named on the factsheet is the one the fund actually tracks, in the same currency and on the same hedged or unhedged basis. Comparing an unhedged fund against a hedged index measures the exchange rate, not the fund, and our currency hedged vs unhedged calculator shows how large that effect can be.
Then use the real cost figure everywhere you would have used the fee. Our fund fee drag calculator and one fund vs multi-fund calculator both become considerably more accurate once the number going into them is the true one.
Related NZ Fund Cost Calculators
- Fund Fee Drag Calculator: what a cost difference does over a long horizon.
- One Fund vs Multi-Fund Calculator: blended cost across several funds.
- Index Concentration Calculator: what the index itself actually holds.
- Currency Hedged vs Unhedged Calculator: making sure you compare like with like.
- Fund Overlap Calculator: whether two funds do the same job.
How to work out what an index fund really costs
- Find the fund's return and its index's return. Both appear on the factsheet, usually side by side over one, three and five years. Use the fund's return after fees, which is how returns are normally reported, and make sure both figures cover the same period.
- Use the same basis for both. The index figure should be the one the fund is actually benchmarked against, in the same currency and on the same hedged or unhedged basis. Comparing an unhedged fund against a hedged index measures the currency, not the fund.
- Enter the stated fee. The total published fee, including any administration charge. This is the figure the fund is marketed on and the one this page tests.
- Read the total cost of ownership. That is the shortfall against the index, and it is what the fund actually cost you. Anything above the stated fee is a cost that never appears in a fee comparison.
- Enter a second fund. This is where the exercise earns its keep. A fund with a lower fee frequently has a larger shortfall, so the cheaper-looking option can be the more expensive one to own.
- Use several periods before concluding. One year of tracking difference is noise. Run the one, three and five year figures separately, because a fund that lags consistently is telling you something and a fund that lags once is not.