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For a Fund, the Benchmark Index defines the investment universe, the risks and potential returns. For a stock it becomes a reference for performance measurement.

In preparing to invest in the Stock Market, identifying and setting an appropriate Benchmark Index is critical in defining the investment universe, the risks and potential returns. There are many, many indexes. A Benchmark Index, could be either a broad market index, a market capitalisation index, for example Small Cap Stocks, or a sector index, Financial Stocks. The critical issue is that it is the Index referred to when investing or measuring the relative performance of either a fund or a stock.

For an index to be considered appropriate for the purpose of benchmarking, it must contain the stock being referred to or in the case of a fund, a large portion of a fund’s holdings must be taken from the Benchmark index’s constituents. The less representative of a fund’s holdings to the Benchmark Index, the wider the Tracking Error. The Benchmark Index chosen in order to measure a Fund’s performance must not be swapped for another index. If the Benchmark Index changes, then this could change the characteristics of the Fund.


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Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: or Telegram +393339034488

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Smartest Data aims to be your go-to source for analysis and commentary on Investments, Personal Finance and the Global Stock Markets. The aim is to provide our readers with insightful and actionable information for independent minded Investors.  Dissecting  the daily avalanche of Data produced by the Stocks Market by using data Websites  and Apps available to people at home. Join us, to be Driven by Data to navigate the Investment universe markets and make better informed investment decisions.