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 European Stoxx 600 benchmark was down nearly 6 percent in midday trading. Anchorage Daily News, "Stock losses deepen as key recession warning surfaces," 14 Aug. 2019 Still, all three stock benchmarks are on track to finish the week a bit lower. Anneken Tappe, CNN, "Dow climbs higher as hopes grow for a bigger rate cut," 19 July 2019 An alternative benchmark might be to provide health care consumers with a range of contract rates or the Medicare rate for a service. J.b. Silvers, The Conversation, "Health care price transparency: Fool’s gold, or real money in your pocket?," 24 June 2019 Both benchmarks were up twice as much earlier in the day. Benoit Faucon, WSJ, "Gulf of Oman Attacks Scramble a Crucial but Dangerous Shipping Route," 13 June 2019 Partly for that reason, the economic effect of Wednesday’s drop in the Fed’s benchmark rate to 2.25% from 2.5% will almost certainly be muted. Los Angeles Times, "Fed cuts interest rate for first time since 2008, adopting risky new strategy," 31 July 2019 And while the agreement is only with California, the benchmarks are determined based on a car company’s national fleet rather than just within the state, which gives carmakers more flexibility. Umair Irfan, Vox, "Car companies’ surprising deal with California on environmental rules, explained," 30 July 2019 Are there regular benchmarks that need to be met to qualify for continued funding? ProPublica, "Calling College Journalists of Color! Apply for ProPublica’s Emerging Reporters Program.," 29 July 2019 Storms have so constantly battered the Louisiana coast during the past decade that historical benchmarks have lost their meaning. Benjamin Wallace-wells, The New Yorker, "A Louisiana Republican Reckons with Climate Change," 27 July 2019

Recent Examples on the Web: Verb

In Asian trading, Japan’s benchmark Nikkei 225 declined 0.7% to finish at 21,535.25. Washington Post, "Global shares edge up on upbeat US earnings reports," 16 July 2019 Japan’s benchmark Nikkei 225 edged down nearly 0.2% to finish at 21,533.48. Washington Post, "Asian markets mixed, pausing ahead of Fed chief testimony," 10 July 2019 The financial sector is by far the biggest component in Australia’s benchmark S&P/ASX 200 index. Kevin Kingsbury, WSJ, "Australian Banks Head for Worst Year Since Financial Crisis," 19 Dec. 2018 In practice, emerging markets investors who benchmark their performance against MSCI’s index were safely able to ignore the move. Mike Bird, WSJ, "China’s Stock Market Isn’t Too Big to Ignore," 28 Feb. 2019 Japan’s benchmark Nikkei 225 jumped 2.2 percent and South Korea’s Kospi rose 1.4 percent. Marley Jay, The Seattle Times, "Wall Street ends higher with help from tech and health care," 12 Dec. 2018 Japan’s benchmark Nikkei 225 index rose 0.3 percent and South Korea’s Kospi gained 0.3 percent. Washington Post, "US stocks waver; tech and retailers rise but banks fall," 5 June 2018 On Thursday, the country’s equities benchmark logged its third drop of at least 2.4% since the middle of last week. Ese Erheriene, WSJ, "Dollar’s Comeback Knocks Stocks in Indonesia as Foreign Investors Flee," 3 May 2018 The Ford's noise-vibration-harshness standards were clearly benchmarked against European luxury cars to ensure Land Rover acceptability. Ezra Dyer, Popular Mechanics, "Diesel Truck Battle (Non-HD): F-150 Diesel Vs. Nissan Titan XD," 25 Jan. 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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Statistics for benchmark

Last Updated

17 Aug 2019

Look-up Popularity

Time Traveler for benchmark

The first known use of benchmark was in 1813

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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

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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