An attempt at a definition
Applicable to all fields of activity, benchmarking is above all a comparison tool. It is a tool which enables the performance of a company, a service, or a product to be evaluated in relation to other market players and their offer. Transposed to finance, benchmarking – or reference indexing – is a measure of a performance level of a fund, class, or group of assets. It thus becomes a reference indicator offering the possibility of evaluating the profitability of an investment. It also serves as a template for analysing the risks associated with a particular security or investment.
Composition of a reference index
SMI, DAX, Nikkei, S&P 500, CAC 40, Dow Jones, Stoxx, MSCI… if these terms sound barbaric to some, they cannot be ignored by finance professionals. These reference indexes in effect serve as financial barometers. They reflect the evolution, trends and average price fluctuation of an asset class: for the SMI (Swiss Market Index), for example, we will find the shares of the 20 largest Swiss companies; for the S&P500, the 500 most powerful American companies.