Benchmarks Quiz

Given the following choices please match with explanation of the benchmark. Use one for each description Absolute Manager Universe Broad Market Index Style Index Factor Model Based Returns Based Custom Security Based 1. Benchmark created by using a normal portfolio which relates the return to a set of systematic factor exposures which are common to the manager. This is expensive, usually not unambiguous and not investable. 2. Manager’s select the securities which they feel represent the best investment opportunites out of their investment universe. The securites are weighted in a fashion appropriate to the manager. Advantages are that it meets all benchmark criteria, yet can be expensive to maintain. 3. Only a return objective, and not investable and don’t satisfy the criteria of valid benchmarks. 4. Constructed using a series of manager’s account returns and series of returns on several investment inidces over the same periods. Return series are submitted to an algorithm which solves for the combination of invesmten style indexes that most closely tracks account returns. Is easy to use, intuitive, unambiguous, investable, but indices may not provide precise match. 5. Well recoginized and easy to understand, but the disadvantage is that the manager’s style may deviate from the style reflected by this benchmark. 6. Represent particular asset categories, and are widely available understood and accepted. 7. Median manager from a broad collection of managers. It is measurable, but fails many tests of benchmark quality, including that it is not investable and not specified in advance.

1 - Factor Model Based 2 - Custom Security Based 3 - Absolute 4 - Returns Based 5 - Broad Market Index 6 - Style Index 7 - Manager Universe

  1. Returns Based 2. Custom Security 3. Absolute 4. Factor Model 5. Broad Market Index 6. Style Index 7. Manager Universe

Dwight you got it!

1 factor 2 custom 3. absolute 4. returns based 5. broad market 6. style 7 manager

Damn, kept going back and forth on 1 and 4. “Algorithm” got me thinking 4 was factor model.