benchmark

noun
bench·mark | \ ˈbench-ˌmärk \

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

Another relevant benchmark for Drake’s 2010s success is Kanye West. Stereo Williams, Billboard, "Drake's 2018 Has Been Huge. But Is He the Biggest Rapper Ever?," 13 July 2018 More On a conference call, Mr. Gerspach argued that the spread between two- and 10-year Treasury yields, the most common benchmark for yield curve steepness, doesn’t matter much to banks. Aaron Back, WSJ, "Investors Are Ignoring the Good News in Banks," 13 July 2018 The 2 percent represents the amount each country aims to spend on its own defense, not some kind of direct payment to NATO or the U.S. NATO estimates that 15 members, or just over half, will meet the benchmark by 2024 based on current trends. Jonathan Lemire And Jill Colvin, Fox News, "Trump claims Germany 'controlled' by Russia," 11 July 2018 No ratings system is perfect, and Leapfrog isn't the only program U of L Hospital uses as a benchmark. Morgan Watkins, The Courier-Journal, "University of Louisville Hospital says it's on mend minus KentuckyOne," 5 July 2018 The coalition's research included costs for utilities and uses two-bedroom apartments as a benchmark because so many families are renters. Catherine Reagor, azcentral, "Metro Phoenix renters must earn almost $20 an hour to afford an apartment," 1 July 2018 West Texas Intermediate crude, the benchmark for U.S. oil prices, jumped by more than 2 percent on the news, to more than $70 a barrel. Eric Levitz, Daily Intelligencer, "Trump Calls On Allies to Quit Buying Iranian Fuel. Oil Prices Spike.," 26 June 2018 The kind of huge album sales which once served as the benchmark for pop stardom have been steadily disintegrating since the explosion of MP3s in the early 2000s. Dj Louie Xiv, Vanities, "Has 2018 Killed the Pop Star?," 22 June 2018 The group alleged that Citibank misrepresented the integrity of the benchmark to state and local government, not-for-profit, private, and institutional trading counterparties. Susan Tompor, Detroit Free Press, "Citibank to pay Michigan $3 million in rate settlement," 15 June 2018

Recent Examples on the Web: Verb

Japan’s benchmark Nikkei 225 index rose less than 0.1 percent while South Korea’s Kospi lost 0.3 percent. Marley Jay, The Seattle Times, "US stocks inch higher a day after sharp losses; GE leaps," 26 June 2018 President Trump likely will lash out at countries spending less on defense than the alliance’s benchmark 2% of gross domestic product. Elisabeth Braw, WSJ, "Europe’s Little Alliances Can Help Bolster NATO," 10 July 2018 Japan’s benchmark Nikkei 225 added 0.7 percent and South Korea’s Kospi gained 0.4 percent. Marley Jay, The Seattle Times, "US stocks climb again as Pepsi leads household goods rally," 10 July 2018 Japan’s benchmark Nikkei 225 lost 0.3 percent and South Korea’s Kospi fell almost 0.1 percent. Washington Post, "US stocks sink on trade concerns; China pork duty hits Tyson," 2 Apr. 2018 The Fed’s rate-setting committee unanimously agreed earlier in June to lift the central bank’s benchmark short-term rate for the second time this year, to a range between 1.75% and 2%, and officials penciled in two more rate increases this year. Nick Timiraos, WSJ, "Powell to Testify Before Senate on July 17," 28 June 2018 One aim is to create a framework within which to classify the sorts of activities that qualify as sustainable investments, and against which to benchmark existing standards. The Economist, "The EU wants to make finance more environmentally friendly," 22 Mar. 2018 China’s main market index fell 2.5 percent and Japan’s benchmark lost 1.5 percent. Joe Mcdonald, BostonGlobe.com, "China vows to fight Washington on tariff hike," 31 May 2018 Point to specific achievements, and benchmark them against particular markers within your organization or profession. New York Times, "Your Job Is More Intense. Your Pay and Title Haven’t Kept Up.," 25 May 2018

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

14 Sep 2018

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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