Each ________ needs to comprise portfolios or asset classes that represent a similar investment goal.
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A. B. C. D. E.Explanation
All actual fee-paying discretionary portfolios must be included in at least one composite defined according to similar strategy or investment objective.
The correct answer is D. benchmark.
In the context of investment management, a benchmark is a standard or reference point against which the performance of an investment portfolio or asset class is measured. It is typically a market index or a combination of market indices that represent a specific investment goal or strategy.
A benchmark serves as a point of comparison for evaluating the performance of a portfolio or asset class. It allows investment managers to assess whether their investment decisions and strategies are generating returns that are in line with the stated objectives. By comparing the performance of a portfolio or asset class to its benchmark, investors can determine whether the investments are adding value or underperforming relative to the intended goal.
For example, if an investment portfolio is designed to generate returns similar to the overall stock market, the benchmark might be a broad-based stock market index like the S&P 500 or the MSCI World Index. The portfolio manager would then aim to achieve returns that closely track or exceed the performance of the chosen benchmark.
It's important for investment managers to carefully select an appropriate benchmark that aligns with the investment goal or strategy. The benchmark should represent the asset classes or investment styles that the portfolio is expected to mimic or outperform. This helps in evaluating the manager's skill in generating returns relative to the chosen benchmark.
In summary, a benchmark is a reference point against which the performance of a portfolio or asset class is measured. It represents the investment goal or strategy and helps in assessing the success of investment decisions and strategies.