Your guide to understanding benchmarks

Markets have indices; portfolios have benchmarks. This distinction is more than a semantic nicety. It influences, for good or ill, the way many fund groups hire, evaluate, and compensate their managers. The investment community benefits when these distinctions are well understood. Back to basics To start with the basics: an index is a portfolio of stocks, typically designed to measure market trends either broadly or for a specific market segment. The constituents of an index change relatively infrequently, and the changes that do occur are motivated by something other than a sear...