Identifying False Statement in Benchmarking

In portfolio management, benchmarking refers to the process of comparing the performance of a portfolio or an investment manager to a standard or index. It is crucial for assessing the relative performance of investments. Consider the following three statements regarding the importance and characteristics of benchmarking in performance evaluation:

1. A benchmark must be relevant to the investment objectives of the portfolio it is measuring.

2. A benchmark can be any investment index, regardless of its composition or risk profile.

3. A well-constructed benchmark allows for meaningful performance comparisons over time.

Which of the following statements is FALSE regarding benchmarking in performance evaluation?