The early attraction of S&P index funds: is perfect tracking performance an illusion?

Notes the popularity of index funds with US investors, refers to research on fund performance compared with indexes and presents a study comparing daily returns of S&P 500 index funds with the index itself. Explains the methodology and presents the results, which show that the funds “fall well short” of tracking the index efficiently; although larger funds and/or those with longer term managers have a better tracking performance. Considers consistency with other research and the implications of the findings.