An index and the ETF that tracks it

An index is a calculation

An index combines the performance of selected assets under rules for membership, weighting and periodic updates. Its level in points is the output of those rules. When comparing two benchmarks, check what market each covers and how much weight its largest components carry. Similar names can hide very different baskets.

An ETF has shares that trade

ETF shares change hands on an exchange during the session. A fund seeking to track an index might hold all its constituents or sample a selection that represents them. Other ETFs use active management. The investment objective in the prospectus tells you which approach the fund takes.

Read the return on the right basis

Fund expenses and sampling can create a gap between fund and benchmark returns. An ETF share can also trade above or below its net asset value. Compare matching dates and check whether distributions are included. Then see whether the fund reports a return based on market price or on net asset value.

Check the trade details

Write down the ticker, listing exchange and trading currency. Look up the current bid and ask and read the expense ratio in the fund documents. The spread affects the transaction you make today, while ongoing expenses affect fund performance over time. Together these details help explain why two investors tracking the same index can report different results.