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Determining the Optimal Benchmark for Funds

Ask the asset manager?

Nicolas Rabener
10 min read
23 Oct 2023

SUMMARY

  • Identifying the right benchmark for a fund or portfolio can be difficult
  • Many common metrics like correlation or betas do poorly for benchmark selection
  • Combining metrics is more effective

INTRODUCTION

Is gold the right benchmark for gold miners? Although these companies focus on excavating the precious metal, there are plenty of operational issues like staff strikes, collapsing mines, or politics that can affect these beyond the changes in the gold price.

How about REITs? They own real estate where valuations move at a glacial pace, but trade as public companies and are therefore subject to the whims of stock market investors, of which some only care about their daily P&L.

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