But importantly, tracking error does not reveal the extent to which the fund is under- or overperforming its index or anything about the distribution of errors. Daily tracking error could be concentrated over a few days or more consistently experienced. Therefore, tracking error should be assessed with the mean or median values.
Please explain the meaning of the highlighted portion.
So basically…The difference between the returns of the index fund and its benchmark index is known as a fund’s tracking error…so basically the statement means that the daily tracking error may not represent the daily or that days divergence so as to get the correct tracking error not the biased or unrepresentative one we should use the mean or median values to asses.