1. Tracking error describes the closeness between the fund and the tracking target index according to the difference data of historical returns, and reveals the fluctuation characteristics of fund returns. The smaller the tracking error, the stronger the management ability of fund managers.

2. The main factors that affect the tracking error of index funds are the influence of fund positions, the change of underlying index stocks, the enhanced indexation portfolio, the calculation of tail difference, and the cost of fund assets. Generally speaking, improving the accuracy of tracking the underlying index and reducing tracking is the core technology of index investment, and it is also the premise that index fund, an investment tool, can be used for investor asset allocation.

3. In terms of investment skills, investors should choose to invest in funds with relatively small tracking index. This has a certain economic basis, because when the error is smaller, it can show that the fund management ability is getting stronger and stronger, and natural investors will get more returns and higher returns if they choose funds with strong management ability.