Benchmark Definition
Wilshire 5000 Weekly Chart 4/2004 - 5/2008
Most mutual funds quote their performance versus a benchmark — an index which most closely represents the holdings of the fund.
Extra Insight:
Grading a manager solely on performance versus the benchmark is known as relative returns. This allows managers to quote that they beat the market when the merely lost less than their benchmark index.
Absolute returns are calculated without reference to the benchmark. For private individuals and arguably anyone else whose money is on the line, its really absolute returns that matter.
For my backtesting, the Wilshire 5000 is the most relevant index because it represents the widest selection of stocks as does my backtesting data set. I don’t consider dividends in the backtesting and therefore don’t consider dividends from the index either.
In addition to comparing to holding a market index, its important to compare backtesting results against a very simple baseline strategy to get insight into the basic market behavior of the time period under test.
Last updated 11/11/08.
November 6th, 2008 Filed under GlossaryTags: backtesting, baseline, data
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And I would really appreciate some benchmarks to provide some reaasurance … Mutual Fund Performance