Benchmarking and Performance Evaluation in Portfolio Management

John Smith is a portfolio manager overseeing a $10 million equity portfolio for a high-net-worth individual. The investment strategy primarily focuses on large-cap growth stocks. To evaluate the performance of the portfolio, John decides to use the S&P 500 Index as a benchmark. In preparation for an annual review, he needs to outline the reasons for his choice of the S&P 500 Index, the limitations of this benchmark, and potential alternative benchmarks he could consider.

Additionally, discuss the importance of relative performance measurement compared to absolute performance measurement in this context. Furthermore, explain how John might handle any discrepancies between the portfolio’s performance and the benchmark.