Can you truly trust a benchmark?

ASSET ALLOCATION

Gary Rusby, head of business development at GHC Capital Markets, asks if investors can truly trust a benchmark when assessing a fund or fund manager's performance

In theory, benchmarks sound, and are, great. By comparing a fund or portfolio performance against a standardised basket assessed to perform in line with a suitable risk profile, advisers ought to be able to select funds or managers to match client requirements within their risk boundaries. They also allow advisers to hold their managers to account. All in all, benchmarks ought to be a powerful tool for investors. But too often, we are not comparing like with like. In practice, benchmarking can not only be misleading, but potentially dangerous, for the client.  Unlikely comparisons I...