Compare portfolio return to a benchmark
Benchmarks are used to compare the performance or return of a portfolio to an index. You can view the portfolio return compared to the benchmark in Analytics+ and in some Profit and loss reports.
Benchmarks can be:
Single or composite. Single benchmarks consist of one index. Composite benchmarks consist of a combination of different indices. For example, if your portfolio contains 30% Swedish stocks and 70% Finnish stocks, you can configure a combined benchmark index that includes 30% of OMX Stockholm and 70% of OMX Helsinki. If your benchmark consists of indices in other currency than your portfolio's currency, the index values are converted to your portfolio's currency with a relevant FX rate.
Regular or interpolated. Regular benchmarks are based on the dates and position shares that you entered. For example, you can set a benchmark that is valid from 01.01.2022 and contains 20% of a certain stock. Then, you can raise the position share, for example, to 22% starting from 01.03.2023, and so on. Interpolated benchmarks are based on the position shares on the start and end date of the period. The system calculates the values between the dates to create a gradual change that occurs on business days. For example, if you want to reduce investments in a particular sector from 30% to 20% over 5 years, you can enter two dates and specify the start and end position shares. The values in between the dates will be calculated automatically.
General or portfolio-specific. General benchmark indices are defined in Preferences. You can then apply them to a portfolio by choosing a general benchmark in the Portfolio window, Benchmark tab. Portfolio-specific benchmarks are defined per portfolio in the Portfolio window. If multiple portfolios follow the same benchmark index, it is worth defining a general benchmark index. Also, any modifications made to the general benchmark index affect the portfolios linked to the index.
Create an index security
Index data in FA is stored as the security with market prices. To use a benchmark index, you need to create an index security:
Add a security with the Reference index security type.
Add index values the same way as you add market prices for securities: specify them manually, import from a file, or feed them in from a market data provider. To learn more about adding market prices, see Manage market prices.
Define the benchmark
Define a benchmark index to compare your portfolio performance to. You can define a portfolio-specific benchmark or create a general benchmark in preferences to use with multiple portfolios.
Note
If you want to set up an interpolated benchmark that changes gradually between two dates you need to define it as a general benchmark in Preferences.
To set up a general benchmark:
Go to Preferences → Portfolios → Benchmark index . Add the date from which the benchmark is valid, choose the benchmark index, and specify the weight for it as described in Preference - Portfolios. Depending on the portfolio content and your strategy, you can use one index or combine several indices with different weights. The total percentage must sum up to 100%.
You can set up an interpolated benchmark that changes gradually between the dates – for example, if you want to reduce investments in a particular sector from 30% to 20% over 5 years, you can enter two dates and specify the start and end share percentage. The values in between the dates will be calculated automatically.
Link the general benchmark you created to a portfolio in the Portfolio window, Benchmark → General benchmark tab. Choose the benchmark and click Save.
You can view the current benchmark value for the portfolio in the Portfolio window, Benchmark → Current benchmark tab.
To set up a portfolio-specific benchmark, go to the Portfolio window, Benchmark → Portfolio-specific benchmark tab. Define the benchmark the same way as in Preferences (see step 1 in the instruction above) and click Save.
Compare your portfolio performance against the benchmark
Once you set up a benchmark, you can compare your portfolio return to it using the tools listed below:
Analytics+ view shows portfolio return compared to the benchmark on a graph. For details, see Figures available in Analytics.
Profit and loss reports show the portfolio profit, indexed return and benchmark values as figures and on a graph. For details, see ???