Benchmark Return definition
Every active manager should be held accountable for performance and
the selection of an appropriate benchmark is a good place to start.
Define - Define Benchmark Return.
Context - Use Benchmark Return in a sentence.
Quiz - Test your knowledge.
January 6, 2019
Call it a market benchmark, investment index, benchmark index or
whatever you like. Its returns are fundamental to any investment
performance analysis study.
/ benchmark return
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
- 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 as both
information about that segment of the market and as a bogey for
- 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 not common. Benchmark Returns are
used in portfolio performance analysis applications also known as
Synonym: index return, market return
In a Sentence
Pat: If the market was up 4%, and we were
up 3%, why is Eve so happy?
benchmark return was 2%,
and that's what's in her bonus plan."
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Click box for answer.
With a total portfolio return of 10.24%, an active return of
-1.75%, what was the benchmark return? |
8.49% or 11.99%?
Index returns become benchmark returns only when an active
manager uses them to compare performance? |
True or False?
False, passive managers have benchmarks too.
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