What an ETF tracks — and how it tracks it — matters.
CIBC Investor’s EdgeJul. 01, 2026
2-minute read
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You are comparing two ETFs that look almost identical — both tracking the same index, same market, and similar holdings. Yet over time, their returns start to drift apart.
What’s going on?
What you need to know
ETFs that look similar don’t always hold the same investments
Small differences in how ETFs are built can lead to different results
Even ETFs tracking the same index won’t match perfectly
These differences are usually small but can add up over time
It starts with what the ETF tracks
Two ETFs can focus on the same market — like Canadian stocks or U.S. technology — but follow different indexes.
And these indexes aren’t identical. Each one is built using its own set of rules:
Which companies to include
How much weight each index gets
How often the index is updated
These choices shape what the ETF holds and how it performs.
A simple example
Two ETFs might invest in Canadian stocks. One focuses on the largest 60 companies while another includes hundreds of companies across different sizes.
Both give you exposure to Canadian stocks, but they won’t behave in the same way. In some markets, smaller companies may drive returns. In others, larger companies may hold up better.
Even the same index won’t match exactly
Even when two ETFs track the same index, their performance can still differ slightly. That’s because ETFs don’t track their index exactly.
Some of the differences come from management fees, trading costs, how dividends are handled, timing differences when markets move — along with other small structural factors. This gap is often called tracking difference — the difference between the ETF’s return and the index return.
For international ETFs, currency can also play a role. For example, a Canadian ETF tracking the S&P 500 may come in hedged and unhedged versions. The unhedged ETF’s returns will move with the U.S. dollar, while the hedged version aims to reduce that impact.
Why this shows up more in some ETFs
For large, widely traded markets, these differences are usually small. But they can be more noticeable when the ETF tracks international markets, the underlying investments are less liquid or markets open at different times. In these cases, small frictions can become more noticeable.
What this means for you
When two ETFs behave differently, it’s not necessarily a problem. It usually reflects what they actually hold and how closely they track their benchmark. That’s why it can help to look beyond the name and understand what’s underneath.
Final thoughts
ETFs are often described as simple—and they are.
But when performance doesn’t match what you expected, it’s usually not random. A closer look at what each ETF tracks, and how it tracks it, can often explain why.
