Gary Karz, CFA (email)
Host of InvestorHome
Proficient Investment Management, LLC and InvestingAudit.com

Links

• Morningstar 2Q15, 1Q15, 4Q14, 3Q14, 2Q14, 1Q14, 4Q13, 3Q13, 2Q13, 1Q13, 4Q12, 3Q12, 2Q12, 1Q12, 4Q11, 3Q11, 2Q11, 1Q11, 4Q10, 3Q10, 2Q10, 1Q10, and 4Q09 Fund Category Returns
• Lipper Fund Yardsticks 2Q15, 1Q15, 4Q14, 3Q14, 2Q14, 1Q14, 4Q13, 3Q13, 2Q13, 1Q13, 4Q12, 3Q12, 2Q12, 1Q12, 4Q11, 3Q11, 2Q11, 1Q11, 4Q10, 3Q10, 2Q10 via WSJ - 1Q15 Wealth Report - ETFs, and Largest Stock and Bond Funds.
• Wilshire Indexes and return calculator (About the Wilshire 5000)
• S&P Indices
• Dow Jones Indexes
• MSCI BARRA Indices
• Frank Russell Indexes (most used by large pension plans)
• Callan Associates Periodic Tables (1994-2013)
• Evaluating Portfolio Performance from Jeffery Bailey, Thomas Richards, and David Tierney
• CFA Institute Global Investment Performance Standards
• InvestingAudit.com is a service (free for simple reviews) for investors seeking assistance in evaluting their performance.

Trivia: According to Barr Rosenberg, how many years of observations would it take to show conclusively that even 200 basis points of incremental annual return resulted from superior investment management skill rather than chance? Answer

Background

Benchmarks are used to determine relative performance of portfolios and securities. They are particularly useful in evaluating mutual funds and money managers. Morningstar and Lipper Analytical Services are two of the many services that track and analyze mutual fund performance. Many investment consultants also evaluate money managers and funds vis-a-vis benchmarks and other money managers and funds.

Commonly used benchmarks for measuring US stock returns are the Wilshire 5000 for the broad market, the S&P 500 for large capitalization stocks, and the Russell 2000 for small stocks. Morgan Stanley's EAFE is commonly used for Global stocks.

Generally, experts recommend using benchmarks that are unambiguous, investable (using a median is not an investable option), measurable, specified in advance, and are appropriate and consistent with the managers style. Still, investors should be aware that performance evaluation has two basic problems.

1. Many observations are needed for significant results.
2. Shifting parameters during active management complicate performance valuation.

In addition to returns, its often helpful to analyze risk measures. The following are commonly used risk adjusted performance measures.

• The Sharpe Ratio (developed by William F. Sharpe) divides average portfolio excess return by the standard deviation of returns for the period. It measures reward to total volatility.
• Treynor's measure uses systematic risk (Beta) instead of total risk.
• Jensen's measure is the alpha or the total return less the return predicted by the Capital Asset Pricing Model (CAPM).

Trivia Answer: 70 years
Source: Investment Policy: How to Win the Loser's Game by Charles D. Ellis