It seems like you mostly have a good understanding of how it works. A tracking fund would have to rebalance in the advent of a company issuing or buying back sh

It seems like you mostly have a good understanding of how it works. A tracking fund would have to rebalance in the advent of a company issuing or buying back shares, when there is a corporate action like a spinoff or merger, or when a company is added or removed from the index. Additionally, you have the reality that every day, investors buy and sell that fund. The tracking fund, therefore, has to liquidate or buy new holdings to match the NAV (net asset value) as shares are created or redeemed. This is where tracking funds will vary in their performance as some ETF providers might be a lot worse at matching up inflows and outflows.