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

Those increases have raised its benchmark rate to a still-historically-low range of 2 percent to 2.25 percent. Martin Crutsinger, The Seattle Times, "Powell: US economy and banks seem sturdy but face some risks," 28 Nov. 2018 President Donald Trump added fuel to the fire, blaming the Federal Reserve for continuing to hike a benchmark rate that affects both business and consumer loans. Recode Staff, Recode, "Recode Daily: Silicon Valley may have a Saudi Arabia problem," 12 Oct. 2018 Brent, the global benchmark, closed down 5.6% at $56.26 Tuesday. Amrith Ramkumar, WSJ, "U.S. Oil Prices Down Almost 40% From High," 18 Dec. 2018 To continue reading this story, TRY IT NOW Nationally, with the U.S. benchmark for crude oil settling above $74 a barrel last week, prices are expected to average $2.90 a gallon during the holiday, up from $2.22 a gallon last year. Katherine Blunt, San Antonio Express-News, "Gas prices climbing for the Fourth," 2 July 2018 Brent, the global oil benchmark, closed down 0.1% Wednesday at $60.15 a barrel. Christopher Alessi, WSJ, "OPEC Boosts Output Before Deal Kicks In, IEA Says," 13 Dec. 2018 The couple have been married for 34 years, which is quite the benchmark for the movie business. Samantha Drake, Country Living, "Sam Elliott and Katharine Ross Are One of Hollywood's Most Enduring Couples," 4 Oct. 2018 Even in China, where major equities markets had been down about 20 percent this year, the benchmark index in Shanghai closed almost 2 percent higher. Matt Phillips, The Seattle Times, "As trade war escalates, stock markets shrug — here’s why," 18 Sep. 2018 That doesn’t mean that 54.5 mpg is the actual benchmark for all car companies. Umair Irfan, Vox, "The EPA’s bizarre justification for rolling back fuel efficiency standards," 3 Aug. 2018

Recent Examples on the Web: Verb

SotR is also really GPU-heavy, so be prepared to benchmark your PC with this one. Stefan Etienne, The Verge, "The 13 best games for your new PC," 26 Dec. 2018 Japan’s benchmark Nikkei 225 index added 0.9 percent and South Korea’s Kospi rose 0.3 percent. Marley Jay, The Seattle Times, "Stocks open higher as hope for trade deal with Mexico grows," 27 Aug. 2018 Due to the timing of the deal and its longer maturities, the new bonds came with higher coupons than the first one relative to benchmark swap rates, investors said. Sam Goldfarb, WSJ, "Tesla Sells $837 Million of Auto-Lease Bonds," 14 Dec. 2018 Japan’s benchmark Nikkei 225 index lost 0.1 percent to 21,785.54 while South Korea’s Kospi added 0.1 percent to 2,273.76. Washington Post, "Asian markets wobble as China-US trade tensions rise," 3 July 2018 Oil from western Canada trades at a large discount to benchmark West Texas intermediate oil because producers in Canada’s oil patch have a difficult time getting their crude to refiners. Russell Gold, WSJ, "Husky Makes Unsolicited Bid to Fellow Canadian Oil Firm MEG," 30 Sep. 2018 Facebook is among a group of tech giants involved in benchmarking the latest AI chips, Aaron Tilley reports. Casey Newton, The Verge, "Facebook beats Twitter at fighting fake news, a new study found," 15 Sep. 2018 Those accounts pay interest at levels related to the Federal Reserve’s benchmark short-term borrowing cost, known as the fed-funds rate, which had been near zero for years. Simon Constable, WSJ, "What’s Driving Bank Stocks?," 8 July 2018 Meanwhile, the energy sub-index of Australia’s benchmark S&P/ASX 200 fell more than 1%, declining for a second day. Joanne Chiu, WSJ, "Energy Shares Detract From Broader Gains in Asian Markets," 12 July 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

19 Jan 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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