Impact of Performance Fees on Tracking Error

ABC Asset Management has created a passively managed equity fund designed to track the performance of the XYZ Equity Index. The fund reported a tracking error of 1.5% over the last year. The tracking error is calculated based on the standard deviation of the differences between the fund’s returns and the benchmark's returns.

Recently, the firm has introduced a new fee structure that includes a performance-based fee, which may incentivize fund managers to deviate from the benchmark to achieve higher returns. Given these conditions, which of the following statements about the fund's tracking error is most accurate?