The importance of benchmark selection

Deborah Fuhr and Shane Kelly explain the benefits that benchmarks can bring to ETF portfolios Portfolio management, whether index or traditional active, has always involved a deep level of analysis, but while traditional portfolio management is oriented towards stock selection based on fundamentals, modern portfolio theory provides the necessary tools to construct portfolios in a more scientific way. Benchmarks have been at the centre of the transformation of the portfolio construction process from art to science. The importance of benchmarks can be illustrated through four key uses: ...