1. Petr Straka, CFA, CIM, B.Tech.
Financial Planning Specialist
Dundee Private Investors Inc.

2. CONTENTS
 Benchmarks – Overview
 Qualities of Valid Benchmark
 Main Considerations in Benchmark Selection
 Testing Valid Benchmark
 Examples of Inappropriate Benchmarks
 Case study
 Q & A

3. Benchmarks - Overview
What is a benchmark
and
why to have one?

4. Benchmarks - Overview
History
Usage of benchmark

5. Usage of Benchmarks
Gauge of the market and investor
sentiment
Performance measurement
Asset allocation
Investment vehicle

6. Qualities of Valid Benchmark
Unambiguous and transparent
Investable
Appropriate
Priced daily
Availability of historic data

7. Qualities of Valid Benchmark
Low turnover
Published risk characteristics
Specified in advance
Informed opinion
Owned

8. Main Considerations in
Benchmark Selection
Performance goals and tolerance for
volatility
Liquidity need
Liabilities to meet with investments
Liabilities linked to inflation
Diversification

9. Testing Valid Benchmark
Correlation

10. Examples of Inappropriate
Benchmarks
Absolute return
Manager universe/peer group
Quartile ranking
“Morningstar star” ranking
Broad index vs. style index

11. Case study
 Retail investor
 RRSP portfolio
 Investment vehicles – mutual funds
 Investment policy-60 % Canadian equities /
40% Canadian fixed income
 Desired ave. annual ROR based on “historical” records:
Cdn. Equities 10% average ROR……. 60%.......... 6%
Cdn. Fixed income 5 % average ROR40%......... 2%
---------------------------------------------------------------
Desired ROR………………….………….…....………………8%

12. Case study

13. Case study

14. Case study

15. Case study

16. Q & A
References:
Lawrence B. Siegel: Benchmarks and Investment Management, 2003
CFA Program Curriculum, CFA Institute (www.cfainstitute.org)
ProStation analytical software (www.globeadvisor.com)