What’s in a Benchmark?

The designated benchmarks used within the Scorecard System were selected because they are the most appropriate and/or most commonly used indices in the marketplace (Russell 1000, MSCI EAFE, BC US Aggregate Bond, etc.). While both the Russell and S&P indices are commonly utilized, Russell employs a more quantitative approach to index construction.

Below are some benefits of using the Russell benchmarks:

• Russell ranks each company in the investable universe according to its total market capitalization. The market cap is the primary tool to determine where a company belongs in the Russell Index. S&P uses a committee to make these decisions.

• Russell indices adjust each company’s capitalization ranking to eliminate closely held shares which aren’t likely to be traded. Using this float adjustment methodology, Russell creates benchmarks which most accurately reflect the market.

• Russell updates their indices’ holdings on a regular basis. Russell reconstitutes its indices annually, which assist in a truer representation of the market.

• Russell indices objectively allow the market to determine the index composition according to clear and published rules. The market determines which companies are included, not the subjective vote of a selection committee.

As a reminder, the score is a starting point. For a complete picture of a score’s performance, run an Asset Class Review report. Those several pages often revive the fiduciary decision to keep, watchlist or consider replacement of a fund in question.

Still not sure which indices to use? Contact a KerberRose Trusted Advisor to learn more.