UNIT 1
Benchmarks
Performance only has meaning relative to an appropriate opportunity set or risk-free alternative.
Fund vs benchmark+18%+22%
Whether active decisions added value over a comparable passive baseline.
- Evaluating funds
- Reviewing personal portfolios
- No benchmark is perfect
- Mandates can drift
Choosing a weak benchmark after seeing the result.
Benchmark specification materially affects measured excess return and alpha.
60-SECOND CHEAT SHEET
Remember this.
- 1Match the mandate
- 2Choose first
- 3Compare after fees