CapitalatWork

Benchmarking is used primarily as a tool for performance measurement. Various statistical methods have been created in the search for constantly improving performance measurement. It is a clear but simple method of describing how a manager is doing. It is also very much backward looking.

But, what exactly are you measuring? A benchmark, public or not, limits a manager’s security selection to the benchmark. It discourages the manager from taking a lot of excursions outside the benchmark. As a result, benchmarking gives you little or no information on a manager’s skill.

We at CapitalatWork refuse to be locked up in a style box. We want to be free of benchmark-constraints. We have developed an investment philosophy that puts us in the camp of “Value Investing”. Therefore, we feel that we should not be constrained to a specific index. Value can be found in any corner of the market.  And these corners continuously change.

Benchmarking also has uses in risk control. Once again, various statistical methods have been developed to scrutinize the level of risk taken against a specified benchmark. We believe that these statistical methods fail to fully reflect the risks taken. We want to control the risk in our portfolios, investment by investment, each investment separately. We want to understand the fundamental risks inherent in each and every one of our investments. We feel this offers us better risk control than relying on statistical data and filling a portfolio with positions just because they are in a benchmark.