Replication Methods in Passive Equity Investing

Assume you are a portfolio manager responsible for constructing a passive equity portfolio that aims to replicate the performance of the S&P 500 index. Describe the replication methods available for passive equity investing, including the advantages and disadvantages of each method.

In addition, discuss how the choice of replication method could impact the tracking error and overall performance of the portfolio. Be sure to provide specific examples related to the S&P 500 index and detail your reasoning.