In the context of investment management, what does "error tracking" refer to?

"Error tracking" in the context of investment management refers specifically to the discrepancies that may arise between a portfolio's performance and that of its benchmark index. This practice is essential for managers to evaluate how well the portfolio is performing in relation to the benchmark, which serves as a standard for comparison. By identifying these discrepancies, investment managers can pinpoint areas where the portfolio may be underperforming or outperforming, allowing them to make informed decisions to optimize investment strategies.

This process not only helps in assessing performance but also in understanding the sources of any deviations—whether they are due to active management decisions, market movements, or other factors. Effectively managing these discrepancies plays a crucial role in the overall success of investment strategies and in meeting client objectives.