Benchmark Return Definition and Quiz

1. Define - Define Benchmark Return for portfolio performance measurement.
2. Context - Use Benchmark Return in a sentence.
3. Quiz - Test yourself.

by Paul Alan Davis, CFA

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Benchmark Return for performance measurement

Beginner

Benchmark Return is the return on the comparison benchmark portfolio of investments for the period of study. It is added to Active Return to determine Total Return. Benchmark Return is slightly different from Market Return and Index Return, although the terms are often used synonymously.

Synonym: index return, market return

• Total Return = Benchmark Return + Active Return

To clarify often confusing terms, note the subtle differences below.

• Market - A Market is often the most general term in that it can be used to generalize about the whole stock or bond market in general.
• Index - An Index is a more specific term than Market and is clarified with a name, like the S&P 500, Russell 2000, MSCI EAFE, for example. It is most common for service providers to publish holdings and returns on an Index. The daily holdings files provide information about that segment of the market and provides a bogey for portfolio managers.
• Benchmark - When an Index is used as a bogey for active and passive managers it is considered a Benchmark. A Benchmark need not be a third-party Index, meaning it can be created by the manager or consultant, but that is less common. Benchmark Returns are used in portfolio performance analysis applications also known as portfolio benchmarking.

In a Sentence

Pat:  If the market was up 4%, and we were up 3%, why is Eve so happy?
Ted:  Our benchmark return was 2%, and that's what's in her bonus plan."

Video

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Video Script

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Quiz

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Questions or Comments?

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Related Terms

Our trained humans found other terms in the category performance basics you may find helpful.

• Active return
• Portfolio return
• Stock return
• Total return

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• To see all terms in the Glossary, click Outline.
• For the related term Benchmark, click Back.
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• To review the widely-important concept of Beta, click Next.

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