BTY - some funds, Vanguard et al, I believe have changed their 'tracking indexes' or made their definitions at the edges a little mushy to reduce turnover.
So - in an era of reduced expectations - some funds recognize turnover as a cost drag.
Absolutely a key point imho.
Why do you really care if your fund obsessively tracks the index, if it is costing you material amounts of money in transaction fees?
All you _really_ want is exposure to the asset class -- the index is only an imperfect approximation of what the asset class is doing anyway.
DFA has quite explicitly said they will offer you an 'enhanced' index fund -- a better return than the index at the risk of not slavishly tracking the index. They produce this slight premium (half a % or so) I understand, in clever short cuts -- less trading, less spreads, less transaction costs. Especially valuable in foreign stock markets or small stocks subindices here where spreads are bigger.
WSJ and Lipper did a study last year showing how transaction fees in actively managed funds can be 1.75% or more of assets annually.
Bogle figures that the total cost of "Wall Street", by which he means the stated, published fees and expenses, plus all the hidden corrosion of your assets via trading taking place within the fund (don't even get me started talking about funds paying nflated brokerage commissionsand then getting back soft dollars -- legalized kickbacks as far as I'm concerned) --- all this amounts to 3% of assets a year.
Index funds are a good start, but finding tax-managed funds and index funds who intelligently cut corners to save you commissions is, I believe, the next frontier for us cheapskates to be focussed on.