Standard benchmarks such as the S&P500 and Russell indexes are commonly used for performance analysis because of their ubiquity. However, they represent specific asset classes and it makes little sense to use them as benchmarks against a diversified portfolio that covers multiple asset classes.
With Portfolio Lab, you can build a model portfolio made of indexes, and use this model portfolio as a benchmark. To create your benchmark:
- Use ‘Edit->New’ to create a new model portfolio. Enter the benchmark name as the portfolio name.
- Enter the index constituents of the benchmark with their weights. In Portfolio Lab, the index tickers start with ‘$’.
- Select rebalancing: monthly
Your newly created portfolio can now be used as a benchmark. Whenever you need this benchmark, click Compare option in backtest, then A portfolio, then select your benchmark. You may also use this as a benchmark in the PDF report.
If a particular index is not available, you may also use ETFs as proxies for benchmarks. Using ETFs is generally acceptable because most ETFs track their index very closely.