Benchmarks Return Series

A benchmark return series is a series of returns for a single or a composite asset.  The benchmark return series can be used for adjusting the historic return series by a standard.  This is an optional input, but if you use it, the benchmark return series acts as a baseline for measuring asset performance.  You must decide what to use.  Inflation and risk free assets are popular benchmarks, which is why the Estimator can import the Consumer Price Index from the Bureau of Labor Statistics as a benchmark.  Pension funds have been known to use their liability stream.  Using treasury bill returns is one way to achieve a risk free return series.  

• The currently selected benchmark return series appears in light blue to the left of the Asset Returns Worksheet and in the Benchmark drop down menu in the Series Adjustment section of the ribbon.

• The benchmark return series only affects the estimation if it is included as an asset or if you have selected a series adjustment option.  It can appear on the Asset Returns Worksheet without changing anything.

• Change the currently selected benchmark in the Benchmark drop down menu in the Series Adjustment section of the ribbon.  

• You can prepare a benchmark return series on the Asset Returns Worksheet as one of the assets.  Alternately, you can load or import a benchmark return series as a *.nfrs or *.csv file.  The benchmark can be either a single asset file, loaded separately, or one of many assets in a return series file.  

• • The dates and period type of the benchmark return series must match those of the asset return series used in the case.

  • Unlike regular asset return series, a benchmark return series must be complete.  There can be no missing data.

  • The Estimator assumes that you intend to load a benchmark return series when you load or import the return series for a single asset.

• You can choose whether or not to include the benchmark return series as an asset.  For example, if you load the Consumer Price Index as your benchmark, you may not want to include it in your asset universe as an asset.  

• • If the benchmark return series is included as an asset, it will appear twice on the Asset Returns Worksheet, once to the left in light blue and once in the regular blue.  

  • Remove or return it to the asset universe by checking or unchecking the box above the return series on the Asset Returns Worksheet.

  • If you do include the benchmark return series as an asset, the Estimator ignores the entered market portfolio in favor of a market portfolio that is 100% the benchmark return series.

• You can also derive a new benchmark return series based on the asset weights defined in the market portfolio.  

• • The return for each period is a weighted average of the returns for each selected asset class, where the weights are given by the market portfolio.  (Therefore, deriving a benchmark only works when you have complete data; missing data results in a benchmark return series with missing data.)  

  • To derive, select the Derive Benchmark option at the bottom of the assets listed in the Benchmark drop down menu in the ribbon.  The new derived return series is added to the universe of assets and overwrites the previous benchmark return series on the Asset Returns Worksheet.  

  • If you change the market portfolio or the returns, the derived benchmark automatically updates.