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Grace Mbeki, CFA, is a consultant reviewing the benchmarks used by the Dunmore Foundation for three of its managers.

Manager 1 runs a domestic small-cap value portfolio. The foundation currently compares it with a broad large-cap equity index. Mbeki runs a returns-based style analysis on five years of Manager 1's monthly returns and finds the style weights in Exhibit 1, which sum to 100%. She proposes using these weights to build a style benchmark for Manager 1, rebalanced to the weights each month.

Exhibit 1. Manager 1: returns-based style weights

Weight on the small-cap value index: 70%

Weight on the small-cap growth index: 20%

Weight on the cash index: 10%

Exhibit 2. Returns for the most recent year

Return of the small-cap value index: 8.0%

Return of the small-cap growth index: 12.0%

Return of the cash index: 2.0%

Return of the broad large-cap equity index: 10.0%

Return of Manager 1's portfolio: 9.5%

Mbeki splits Manager 1's result against the broad index into two parts. The style part is the style benchmark's return minus the broad index return. The active management part is the portfolio's return minus the style benchmark's return.

Manager 2 runs a long/short equity hedge fund. The foundation judges it against the median return of a peer group of long/short equity funds compiled by a data vendor at the end of each year. Funds that close during the year are dropped from the vendor's peer group.

Manager 3 runs a concentrated portfolio of about 30 stocks chosen from a list of roughly 150 companies that it researches in depth. Its style moves between value and growth over the cycle, and no published index resembles its list of stocks. Manager 3 has said it would accept a benchmark that reflects its own investment process, and Mbeki has access to the manager's research universe and its normal position sizes.

Mbeki's report states that a valid benchmark should be specified in advance, appropriate to the manager's style, measurable, unambiguous, reflective of the manager's current investment opinions, accepted by the manager as accountable, and investable.

Grace Mbeki, CFA, is a consultant reviewing the benchmarks used by the Dunmore Foundation for three of its managers.

Manager 1 runs a domestic small-cap value portfolio. The foundation currently compares it with a broad large-cap equity index. Mbeki runs a returns-based style analysis on five years of Manager 1's monthly returns and finds the style weights in Exhibit 1, which sum to 100%. She proposes using these weights to build a style benchmark for Manager 1, rebalanced to the weights each month.

Exhibit 1. Manager 1: returns-based style weights

Weight on the small-cap value index: 70%

Weight on the small-cap growth index: 20%

Weight on the cash index: 10%

Exhibit 2. Returns for the most recent year

Return of the small-cap value index: 8.0%

Return of the small-cap growth index: 12.0%

Return of the cash index: 2.0%

Return of the broad large-cap equity index: 10.0%

Return of Manager 1's portfolio: 9.5%

Mbeki splits Manager 1's result against the broad index into two parts. The style part is the style benchmark's return minus the broad index return. The active management part is the portfolio's return minus the style benchmark's return.

Manager 2 runs a long/short equity hedge fund. The foundation judges it against the median return of a peer group of long/short equity funds compiled by a data vendor at the end of each year. Funds that close during the year are dropped from the vendor's peer group.

Manager 3 runs a concentrated portfolio of about 30 stocks chosen from a list of roughly 150 companies that it researches in depth. Its style moves between value and growth over the cycle, and no published index resembles its list of stocks. Manager 3 has said it would accept a benchmark that reflects its own investment process, and Mbeki has access to the manager's research universe and its normal position sizes.

Mbeki's report states that a valid benchmark should be specified in advance, appropriate to the manager's style, measurable, unambiguous, reflective of the manager's current investment opinions, accepted by the manager as accountable, and investable.

Grace Mbeki, CFA, is a consultant reviewing the benchmarks used by the Dunmore Foundation for three of its managers.

Manager 1 runs a domestic small-cap value portfolio. The foundation currently compares it with a broad large-cap equity index. Mbeki runs a returns-based style analysis on five years of Manager 1's monthly returns and finds the style weights in Exhibit 1, which sum to 100%. She proposes using these weights to build a style benchmark for Manager 1, rebalanced to the weights each month.

Exhibit 1. Manager 1: returns-based style weights

Weight on the small-cap value index: 70%

Weight on the small-cap growth index: 20%

Weight on the cash index: 10%

Exhibit 2. Returns for the most recent year

Return of the small-cap value index: 8.0%

Return of the small-cap growth index: 12.0%

Return of the cash index: 2.0%

Return of the broad large-cap equity index: 10.0%

Return of Manager 1's portfolio: 9.5%

Mbeki splits Manager 1's result against the broad index into two parts. The style part is the style benchmark's return minus the broad index return. The active management part is the portfolio's return minus the style benchmark's return.

Manager 2 runs a long/short equity hedge fund. The foundation judges it against the median return of a peer group of long/short equity funds compiled by a data vendor at the end of each year. Funds that close during the year are dropped from the vendor's peer group.

Manager 3 runs a concentrated portfolio of about 30 stocks chosen from a list of roughly 150 companies that it researches in depth. Its style moves between value and growth over the cycle, and no published index resembles its list of stocks. Manager 3 has said it would accept a benchmark that reflects its own investment process, and Mbeki has access to the manager's research universe and its normal position sizes.

Mbeki's report states that a valid benchmark should be specified in advance, appropriate to the manager's style, measurable, unambiguous, reflective of the manager's current investment opinions, accepted by the manager as accountable, and investable.

Grace Mbeki, CFA, is a consultant reviewing the benchmarks used by the Dunmore Foundation for three of its managers.

Manager 1 runs a domestic small-cap value portfolio. The foundation currently compares it with a broad large-cap equity index. Mbeki runs a returns-based style analysis on five years of Manager 1's monthly returns and finds the style weights in Exhibit 1, which sum to 100%. She proposes using these weights to build a style benchmark for Manager 1, rebalanced to the weights each month.

Exhibit 1. Manager 1: returns-based style weights

Weight on the small-cap value index: 70%

Weight on the small-cap growth index: 20%

Weight on the cash index: 10%

Exhibit 2. Returns for the most recent year

Return of the small-cap value index: 8.0%

Return of the small-cap growth index: 12.0%

Return of the cash index: 2.0%

Return of the broad large-cap equity index: 10.0%

Return of Manager 1's portfolio: 9.5%

Mbeki splits Manager 1's result against the broad index into two parts. The style part is the style benchmark's return minus the broad index return. The active management part is the portfolio's return minus the style benchmark's return.

Manager 2 runs a long/short equity hedge fund. The foundation judges it against the median return of a peer group of long/short equity funds compiled by a data vendor at the end of each year. Funds that close during the year are dropped from the vendor's peer group.

Manager 3 runs a concentrated portfolio of about 30 stocks chosen from a list of roughly 150 companies that it researches in depth. Its style moves between value and growth over the cycle, and no published index resembles its list of stocks. Manager 3 has said it would accept a benchmark that reflects its own investment process, and Mbeki has access to the manager's research universe and its normal position sizes.

Mbeki's report states that a valid benchmark should be specified in advance, appropriate to the manager's style, measurable, unambiguous, reflective of the manager's current investment opinions, accepted by the manager as accountable, and investable.