Not sure that is fixable (the controller trace), the low latency update is taken right before rendering in the rendering thread to re-orientate the controller visually. Traces by design need to be in the game thread and long before that so that game logic can be ran.
They could probably get a “better” result by creating a way of re-sampling the controller position just prior to a trace but it would never be perfect as it could re-position slightly before the render. I don’t think that is is a “bug”, when the trace happens that is where the controller is at that time (+/- a little) and it is in a different location by the time it is rendered.
The real fix for it would be a much higher update (tick / FPS) rate but that brings out a whole bunch of other issues like performance degradation.
The reason it is located “correctly” when turning off the late update is because the engine then no longer late samples the position so it is using the same value to render as to trace.
Think of it this way, if you are moving the controller at 10 feet per second and are running at 90 fps, then you are sampling roughly every 1.3" of movement on the game thread. That is a lot of movement missed for a relatively slow movement speed.