What is a benchmark?

Submitted by PEBA on February 21, 2020


As a PEPP member, have you ever wondered what is meant when the term benchmark is used?  Well, a benchmark is a standard against which the performance of an investment fund or investment manager can be measured.

PEPP investors use benchmarks and indices to tell them “where the market is” and to help them gauge how well the markets are performing. PEPP also uses benchmarks to see how well the PEPP investment funds are performing over the short- and long-term.

When evaluating the performance of any investment, it’s important to compare it against a benchmark with a similar asset mix and composition. Since most of PEPP’s investment funds are allocated to multiple asset classes, its benchmarks are comprised of several different indices.

Some of the benchmarks PEPP uses are: S&P/TSX Composite Index (Canadian Equity benchmark), MSCI EAFE Index (Europe, Australasia and Far East Equity benchmark) and FTSE Canada Universe Bond Index (Canadian Fixed Income benchmark). Stock and bond market indices such as those noted above are useful for investors because they represent the investment opportunities available in that market. In the case of the S&P/TSX Composite Index, it measures the performance of roughly 250 of the largest stocks in the Toronto Stock Exchange which includes over 1,500 stocks in total.

While most investors hope to earn positive returns over time, it is important to keep your benchmark in perspective. If your investment fund has a -5% rate of return, but your benchmark has a -10% rate of return, you are still faring well despite the negative returns. A little note, it is the return on investment achieved over a period of time in relation to its benchmark that is more important than the negative return at that time

For a complete list of PEPP’s benchmarks see the Performance Bulletins in the Investments section on our website. PEPP’s performance bulletins compare the rate of return for PEPP’s investment funds against their benchmarks.

Also, read our monthly PEPP Market Commentary in the Investments Section on our website to review how the markets and funds are performing.


Email a Reply