Benchmark based on custom values

A benchmark based on custom values ​​is a type of benchamark that uses concrete values ​​from the manager’s investment universe for its composition to build that benchmark.

For example, if an investor wanted to invest in large-cap stocks in the United States and Europe, he could use a benchmark that consisted of the 15 most capitalized companies in the S&P 500 and the 10 most capitalized in the Eurostoxx 50 .

Some managers do not invest in all the values ​​that their investment makes possible, so a benchmark based on custom values ​​can be more effective than a benchmark based on general indexes *. The weights of each value that make up the benchmark can also be distributed, distributed by market capitalization or by a customized distribution.

The selection of benchmark values ​​requires both a broad universe of values ​​and a set of selection criteria consistent with the manager’s investment process.

One of the main advantages of this type of benchmarks is that they meet all the properties of a good benchmark, they are very easy to monitor and know the investment risk. On the contrary, it can be very expensive to build and if there is not enough information on the investment style of the manager it may be impossible to build.

Steps to build a benchmark based on custom values

To build a benchmark based on custom values, the following steps must be followed:

  1. Identify the highlights of the manager’s investment process.
  2. Select the values ​​compatible with that investment process.
  3. Devise a weighting system of the reference values, including the liquidity position.
  4. Review the preliminary benchmark and make modifications.
  5. Rebalance the benchmark with a predetermined frequency. at a predetermined time.


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