Selecting
appropriate benchmarks
When looking at
the index for its suitability as a benchmark for
measuring performance, its most important aspect is
market capitalization, followed by the mix of value
and growth stocks.
Because of its
broad industry mix and its method of weighting, the
S&P
500 Index has
been the yardstick of performance in the investment
management filed. It still is most widely used and
remains valid as an appropriate large cap
benchmark.
However, you may
find that your mix of portfolio necessitates the
need for benchmarks that more closely reflect your
universe. Two of many such indexes are the
S&P
MidCap 400 Index
and
S&P
SmallCap 600
Index.
Zacks tracks and
maintains membership of the S&P 500, S&P
MidCap 400 and S&P SmallCap 600 indexes, in
addition to providing top down performance, we may
take a bottom up approach in order to provide more
in depth analysis.
Once example is
the increasing number of our clients who are
interested in looking at the sector makeup of the
indexes compared to their own portfolios on a
monthly bases.
A typical
analysis breaks each index down into Zacks Sectors
and looks at the number of companies within each
sector, along with each sector's market weighting
and a market weighted holding period return for the
month.
This
provides one easy tool for analysis of a portfolio's sector diversification
and performance versus its appropriate benchmark.
You can E-mail your questions to: comments@zacks.com
