Selecting an Appropriate Benchmark

Very Easy Performance Evaluation Benchmarking

John is a portfolio manager responsible for managing a diversified equity fund. He is considering the appropriate benchmark to compare his fund's performance against in order to evaluate its effectiveness. A benchmark should ideally reflect the investment universe of the portfolio, allowing for a fair comparison of returns against a representative standard.

Which of the following best describes what John should consider when selecting a benchmark for his equity fund?

Select a benchmark that only includes large-cap stocks to ensure high returns.

Choose a benchmark that mirrors the fund's investment style, including similar asset classes and risk profile.

Use an arbitrary index that includes all types of financial securities.

Hint

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% Correct66%