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 United States has not presented concrete benchmarks to assess whether the U.S. ally is sufficiently stemming the migrant flow from Central America. chicagotribune.com, "GOP senators warn Trump over Mexico tariffs. He says they'd be 'foolish' to try to stop him.," 4 June 2019 Unchanged last week, the benchmark has surged 65% this year. Bloomberg, The Mercury News, "Mexican avocado price jumps to highest since August 2017," 4 June 2019 Sometimes an employee’s performance gap is big enough that gradually increased goals with steps or benchmarks are required. Michael Smith, USA TODAY, "Manager keeps adding more goals to my performance action plan: Ask HR," 4 June 2019 The increases will force asset managers to purchase shares of Chinese companies to match their changing benchmark. Asjylyn Loder, WSJ, "Indexes to Unleash Flood of Money Into Chinese Stocks," 16 May 2019 Reese Witherspoon is one of those famous people who serve as a pop culture benchmark for anyone watching movies in the last 20-or-so years. Allure, "Reese Witherspoon Explains Why She’s Proud of Her Gray Hair and Fine Lines," 18 Apr. 2019 Market benchmarks in London, Frankfurt, Tokyo and Hong Kong all advanced and Wall Street was on track to open higher. Joe Mcdonald, The Seattle Times, "Global stocks rise after China reports stronger exports," 12 Apr. 2019 Transporting a barrel from Canada to the U.S. Gulf Coast costs about $20 by rail, compared with about $12.50 by pipeline—exceeding the current difference between U.S. and Canadian benchmark crude prices. Erica E. Phillips, WSJ, "Today’s Logistics Report: XPO’s Acquisition Shift; Amazon Drops Big Apple; Aviation’s Jumbo Reversal," 15 Feb. 2019 The American benchmark price is now about $68 a barrel. New York Times, "Oil Prices Reverse Their Rise, and Drivers May See Relief," 25 May 2018

Recent Examples on the Web: Verb

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 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

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

8 Jun 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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