benchmark

noun
bench·​mark | \ ˈbench-ˌmärk How to pronounce benchmark (audio) \

Definition of benchmark

 (Entry 1 of 2)

1a : something that serves as a standard by which others may be measured or judged a stock whose performance is a benchmark against which other stocks can be measured
b : a point of reference from which measurements may be made
c : a standardized problem or test that serves as a basis for evaluation or comparison (as of computer system performance)
2 usually bench mark : a mark on a permanent object (such as a concrete post set into the ground) indicating elevation and serving as a reference in topographic surveys and tidal observations

benchmark

verb
benchmarked; benchmarking; benchmarks

Definition of benchmark (Entry 2 of 2)

transitive verb

business : to study (something, such as a competitor's product or business practices) in order to improve the performance of one's own company

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Examples of benchmark in a Sentence

Noun a stock whose performance is a benchmark against which other stocks can be measured this prize-winning biography will be the benchmark against which all others will be judged in future years
Recent Examples on the Web: Noun The removal of the law, which set a ceiling on what lenders can charge on loans at four percentage points above the benchmark rate, will appease the central bank that criticized it for complicating monetary policy. David Herbling, Bloomberg.com, "Banks Seen as Biggest Winners as Kenya Lawmakers Scrap Rate Caps," 5 Nov. 2019 The Fed’s move will reduce its benchmark rate — which influences many consumer and business loans — by an additional quarter-point to a range of 1.75% to 2%. Martin Crutsinger, Anchorage Daily News, "Federal Reserve makes modest interest rate cut amid high uncertainty in economy," 18 Sep. 2019 But on Wednesday, for the first time since 2007, yields on two-year Treasury notes briefly exceeded the interest rate on the benchmark 10-year note. Nelson D. Schwartz, New York Times, "Markets Are Shaken by New Signs of Global Economic Trouble," 14 Aug. 2019 Market benchmarks in Shanghai, Tokyo and Hong Kong all retreated. Joe Mcdonald, Twin Cities, "Asian stocks lower after US indexes tumble on recession fear," 14 Aug. 2019 The yield on the benchmark 10-year U.S. Treasury bond was trolling at 1.76 percent, which means investors are scared and locking up their money for safety but very little return. oregonlive.com, "Just how bad was Monday’s stock market drop?," 5 Aug. 2019 Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2%-2.25%. Bloomberg Wire, Dallas News, "Fed cuts interest rates for first time since financial crisis," 31 July 2019 Core inflation, which strips out volatile food and energy prices, rose faster than expected, sending the yield on the benchmark 10-year U.S. Treasury note up to 2.122% from 2.061% a day earlier. Michael Wursthorn And Nathan Allen, WSJ, "Health-Care Rally Helps Lift Dow to Record Close," 11 July 2019 Shares slid in Japan and Australia, while benchmarks in Hong Kong and India edged higher. Laura Curtis, latimes.com, "U.S. stock futures pare gains as Trump talks about suing tech giants," 26 June 2019 Recent Examples on the Web: Verb Employees can and should benchmark their salaries, titles, and equity packages to the outside market to give them more negotiating ammunition. Ariella Steinhorn, Quartz at Work, "I spent a year researching workplaces in the post-#MeToo era. Here’s what I learned," 18 Oct. 2019 Japan’s benchmark Nikkei 225 gained 1.1% to 21,604.16 in early trading. Yuri Kageyama, San Diego Union-Tribune, "Asian shares rise despite worries on US-China talks," 7 Oct. 2019 Japan’s benchmark Nikkei 225 inched up nearly 0.2% to 23,344.06 in morning trading. Washington Post, "Asian shares mixed amid cautious mood, eyes on trade talks," 18 Nov. 2019 Perpetual Guardian’s own model involves measuring productivity achieved in five days and benchmarking to that standard, then allowing teams and individuals to work out how to get there in 80% of the time. Cassie Werber, Quartz at Work, "One passionate CEO on deciding to give her staff a day off every single week," 14 Oct. 2019 The Fed’s benchmark short-term rate stands in a range of just 1.75% to 2%. San Diego Union-Tribune, "Fed’s odd dilemma: Low unemployment but pressure to do more," 8 Oct. 2019 Technical collaborations have been undertaken with countries such as the UK, Australia and the UAE for benchmarking and mutual recognition of standards. Manish Kumar, Quartz India, "A three-pronged strategy to upskill India’s workforce," 29 Sep. 2019 The country’s benchmark S&P BSE Sensex has minted three fresh records this week, bringing its year-to-date rally to 8.4%. Saumya Vaishampayan, WSJ, "India’s Insulated Stock Market Powers Ahead," 26 July 2018 Again, Android runs off the SD card, so running a storage benchmark would just benchmark my SD card. Ron Amadeo, Ars Technica, "Turning the Nintendo Switch into Android’s best gaming hardware," 15 Aug. 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'benchmark.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of benchmark

Noun

1813, in the meaning defined at sense 2

Verb

1952, in the meaning defined above

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Time Traveler for benchmark

Time Traveler

The first known use of benchmark was in 1813

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Statistics for benchmark

Last Updated

7 Dec 2019

Cite this Entry

“Benchmark.” The Merriam-Webster.com Dictionary, Merriam-Webster Inc., https://www.merriam-webster.com/dictionary/Benchmarks. Accessed 15 December 2019.

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More Definitions for benchmark

benchmark

noun

Financial Definition of benchmark

What It Is

A benchmark is a feasible alternative to a portfolio against which performance is measured.

How It Works

Let's assume you compare the returns of your stock portfolio, which is a broadly diversified collection of small-cap stocks and is managed by Company XYZ, with the Russell 2000 index, which you feel is an accurate universe of feasible alternative investments. If Company XYZ's portfolio returns 5.5% in a year but the Russell 2000 (the benchmark) returns 5.0%, then we would say that your portfolio beat its benchmark.

Benchmarks help an investor communicate his or her wishes to a portfolio manager. By assigning the manager a benchmark with which to compare the portfolio's performance, the portfolio manager will make investment decisions with the eci's performance in mind.

The most commonly used benchmarks are market indexes such as the Dow Jones Industrial Average, the S&P 500, or the Russell 2000. However, there are dozens of other market indexes out there that focus on specific industry sectors, security classes, or other market segments. Investors also use other portfolios, mutual funds, or even pooled accounts to construct benchmarks. LIBOR is one of the most widely used benchmarks for short-term interest rates, and the Fed controls another common interest benchmark known as the Fed Funds rate.

A good benchmark should appropriately reflect the portfolio's investment style and strategy as well as the investor's return expectations. For example, the Russell 2000 may be an appropriate benchmark for a portfolio investing exclusively in small-cap domestic stocks, but it may be inappropriate for a portfolio investing in bonds and international REITs. Comparing a portfolio to an inappropriate benchmark could yield misleading information. The portfolio may look fantastic compared to one benchmark but lag considerably behind another. It is difficult to benchmark some portfolios effectively, especially real estate portfolios, where each asset is unique. Further, it is important to compare a portfolio with its benchmark over a long period of time.

Portfolio managers vary in their benchmark strategies. For example, passive managers seek to replicate their benchmarks. This is the strategy behind index mutual funds, which replicate broad market indexes or indexes of securities with special characteristics. Actively managed portfolios on the other hand, seek to beat benchmark returns but generally require added risk and expertise to do so.

Venture capitals frequently receive incentive fees if their portfolios exceed the benchmark return. However, it is important to structure these incentives in a manner that does not motivate a manager to unduly increase the portfolio's risk.

Why It Matters

Comparing a portfolio's returns to a benchmark is a way to measure a portfolio manager's skill. It answers the question, "What value was added by the manager's decisions." The difference in the portfolio and benchmark returns, called tracking error, quantifies this. Tracking error gives investors a sense of how "tight" the portfolio in question is around its benchmark or how volatile the portfolio is relative to its benchmark. As a result, benchmarks not only measure returns, they help measure risk and help the investor determine whether the added return adequately compensates for the risk involved.

Benchmarking lies at the heart of the controversy between passive and active management. Passive managers often note that active managers frequently fail to match or beat their benchmarks, and they question the reliability of active managers' methods for recognizing and predicting trends. Many passive managers espouse the efficient market hypothesis, which says that stock prices are random and already reflect all available information (thus concluding that it is impossible to always beat a benchmark).

Regardless, active managers who have beaten market benchmarks often enjoy a large and loyal following among investors. However, consistently beating those benchmarks remains a big challenge as does defining what benchmark they should beat in the first place.

Source: Investing Answers

benchmark

noun
How to pronounce benchmark (audio)

English Language Learners Definition of benchmark

: something that can be used as a way to judge the quality or level of other, similar things

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