CFA Level I · CFA Level I Exam · Benchmarking Returns
An analyst wants to judge whether a manager's results reflect skill. Which of the following statements about the main purpose of a benchmark is most accurate?
A benchmark is a standard of comparison that lets investors evaluate performance relative to the mandate and risk of the portfolio. It does not guarantee positive returns and does not determine fees, so the comparison-standard option is the correct description.
- AIt guarantees the portfolio will earn a positive return.
- BIt provides a standard of comparison for evaluating an investment's performance against its mandate.Correct
- CIt sets the fee the manager charges the client.
Explanation
A benchmark is a point of reference used to evaluate the performance of an investment or manager relative to its stated objective and investable universe. It does not guarantee returns or set fees.
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