The fund pays out dividends in shares, and the share price always goes down so that your net investment stays the same after the dividend (+/- daily change in underlying index). If you only track the share price, it will be artificially low compared to the index since the index does not adjust. If you track the net return of the fund, it will be higher than the index because dividends get baked into the fund.
Simplistic example:
day before dividend, Share price = $100
Dividend of 1% dispersed
After dividend, Share price = $99