Benchmark: what is it – Economics Dictionary

Benchmark Concept

It is a reference that is used to make comparisons. In the financial field, any index that is taken as a reference to assess the efficiency in managing a portfolio is a benchmark. For example, for a portfolio invested in Spanish equities, the most frequent benchmark is the Ibex-35, and good management would consist of exceeding the revaluation of the index or losing less than its devaluation.

The benchmark of an investment fund will be the reference index used to contrast the behavior of this fund in comparison with a standard fund in a time frame. In this way, it can be determined if the fund manager has obtained profitability thanks to his investment skill. It helps the investor to know if he is interested in investing in that investment fund, or on the contrary, investing directly in the benchmark, reducing its management costs.

In this way, each fund or investment company is based on a benchmark that best suits its objectives. Among the advantages that we can attribute to the use of this technique is that it helps to define the destination of the investment and that through it the investor obtains a tool with which to compare and evaluate their current and historical performance.

Specifically in economics, the tool that tries to achieve efficient behavior in monopoly markets is called Benchmark and consists of comparing the performance of these companies through different metrics.

It is used to carry out a comparative analysis of the products or services offered by the competition, carried out in order to improve an existing product or to design a new one in any sector. This study or technique seeks to guide the best practices and strategies in order to move towards continuous and customer-oriented improvement.

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This essential tool helps to know what the competition is doing, thus adapting to the particular needs of the company, to make the appropriate adjustments according to the circumstances and the momentum of the company or organization.

Origin: CNMV

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