Selecting a specific benchmark is an individual decision, but there are some minimum standards that any benchmark under consideration should meet. To be effective, a benchmark should meet most, if not all, of the important criteria including investability, daily pricing, historical data, low turnover, publication.
A benchmark serves a crucial role in investing. Often a market index, a benchmark typically provides a starting point for a portfolio manager to construct a portfolio and directs how that portfolio should be managed on an ongoing basis from the perspectives of both risk and return. It also allows investors to gauge the relative performance of their portfolios.
A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured or judged. Benchmarks are created to include multiple securities representing some aspect of the total market. Broadly speaking, a benchmark is an index that serves as the measurement yardstick for a portfolio by comparing portfolio characteristics such as returns, risk, component weights and exposure to sectors, styles and other factors to the benchmark.
A benchmark ETF (exchange traded fund) is more commonly known as an index-tracking or passively managed ETF. The fund's directive is to track the underlying benchmark which is the market for that particular asset class or strategy.