Benchmark
A standard index used to measure a portfolio's performance.
What is Benchmark?
A benchmark is a standard against which the performance of an investment portfolio is measured. Common benchmarks include the S&P 500 for US large-cap equities, the Bloomberg US Aggregate Bond Index for US bonds, and the MSCI World Index for global stocks. Fund managers are evaluated by whether they beat or trail their benchmark on a risk-adjusted basis. The choice of an appropriate benchmark — one that matches the fund's investment universe and strategy — is critical for a fair comparison.
Example
A US large-cap equity fund that returned 12% when the S&P 500 returned 14% underperformed its benchmark by 200 basis points (2%), even though the absolute return was positive.
Source: CFA Institute — Benchmarks and Performance Attribution