Thursday, December 23, 2010


A benchmark is the performance target for the fund. A benchmark is typically an index, or security return, and should be suitable to the portfolio objectives and composition. For example a bond fund may have the Barclays Global Aggregate index as its benchmark, or a US equities fund may use the S&P 500 as its benchmark, an absolute return fund may use a Treasury Bill or Government Bond yield as its benchmark or minimum hurdle. There are a vast range of indexes to choose from, but it is important to select an appropriate index, both from an investor perspective as well as a fund manager perspective. Often a fund manager will specify the benchmark in their investment documents, and may even aim to beat a certain benchmark by a certain percentage as their investment objective. Meanwhile wholesale and institutional investors may require a specific index be used as the benchmark. Clarity about the benchmark is important for assessing performance, particularly when applying advanced performance analysis such as the information ratio, or Sharpe ratio.

Synonyms:  Index, Performance standard, Performance target, Hurdle rate of return, Investment objective

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