Can any one guide what are the component of benchmark. CFI page 308, Answer 29
Depends or your mandate objective, style…
Schweser has a nice explanation of this I believe with the acronym SAMURAI:
S pecified in advance A bsolute M easurable U nambigous R epresentative of asset classes A ppropriate/accountable I nvestable
A bsolute
Appropriate.
The benchmark is consistent with the manager’s investment approach and style as well as the portfolio’s objectives and constraints. R should be Reflective of the manager’s current investment opinions?
Yes, R should be Reflective of current manager opinions - where the manager can express a positive or a negative opinion on Benchmark securities within the index. Meaning you should be able to take a long or short position on any stock in the referenced index.
Don’t forget this one.
Owned. The investment manager should be aware of and accept accountability for the constituents and performance of the benchmark. It is encouraged that the benchmark be embedded in and integral to the investment process and procedures of the investment manager.