FYI: Morgan Stanley’s stocks guru, Adam Parker, argues that part of the trouble active managers have had beating index funds in recent years is that benchmarks themselves are moving targets.
Take the S&P 500: While turnover of the large-cap stock benchmark is low, there certainly is turnover. For the S&P 500, an average of 22 companies, about 4.4% of the index, are added or removed each year. That number tends to rise during big rallies and busts, like 1995-2001 and 2005-2009, when mergers and bankruptcies tend to peak.
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2015/06/15/should-active-managers-blame-the-benchmark/tab/print/
Comments
Another reason why I don't often care if a fund beats its benchmark or not. I use my own financial goals and assessment of the markets as a viable target for absolute returns.
Chasing benchmarks, in my view, only sustains a herd mentality, creates the potential for bad (er desperate) decisions to 'catch up' with the benchmark, and above all, gives fund marketing teams PR fodder for their materials.