Benchmark

An unmanaged group of securities used as a benchmark by which to measure another type of security’s performance is aptly known as a ‘benchmark’. These benchmarks are normally represented as broad market indices. They are a standard or point against which the performance of a security, mutual fund or investment manager can be measured. Broad market and market-segment stock and bond indexes are usually used for this purpose.

A benchmark is also a common and accessible alternative to a portfolio against which performance is measured. Comparing a portfolio's returns to a benchmark allows for the measurement of the portfolio’s performance and the skills of the portfolio manager. A mutual fund, which outperforms the benchmark indicates the work of an efficient fund manager.