Consider a mutual fund manager, Sarah, who has been managing a diversified equity fund that primarily invests in large-cap U.S. stocks. Over the past year, her fund has returned 12%, while the benchmark index, the S&P 500, has returned 10%. Sarah claims superior performance due to her management skills and strategic asset allocation decisions.
However, to properly evaluate her performance, it is essential to determine whether the choice of benchmark and the measure being used are appropriate given the investment strategy.
Which of the following statements best assesses the appropriateness of Sarah's benchmark for performance evaluation?