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Benchmark definition

Like many subtleties in Finance there is a difference between a benchmark, an index and the Market.

Beginner

Benchmark is a portfolio of assets or investments used to compare return and risk, typically for an active portfolio. The benchmark is agreed upon in advance by the active portfolio manager and the client. Benchmark portfolio weights are normally set passively, using one of three methodologies: Equal-weighted, Market-Cap-weighted or Price-weighted. The rebalancing frequency is also known in advance. A benchmark is slightly different from the terms Index and Market.

Synonym: bogey


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Which weighting methodology is least desirable for a benchmark? | Equal or Market-cap or Price?

Price

In a Sentence

Tom:  Did they ask any questions about benchmarks  in your IB interview with Oldman Slacks?
Kay:  Don't worry about that. You'll be fine. Just start every answer with "the client comes first."

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