In order to quantify the success or otherwise of a fund manager,
a metric in the form of a benchmark is usually stipulated. Examples of equity
benchmarks would be broadly based equity indices. In fixed income, the
construction of a benchmark portfolio is more complex, as individual securities
need to be selected.
The characteristics of the chosen benchmark should be:
- Specified in advance to the fund manager
- Unambiguous and appropriate to the type of fund
being run. For example, the Dow Jones index in the
- Liquid and easily measurable
- Reflective of current investment opinions
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