Manager Universe (Benchmark)

What Is a Manager Universe (Benchmark)?

A manager universe (benchmark) alludes to a peer group of investment managers who have a similar investment style. It is utilized to compare the performance of one manager to their peer group, which simplifies it for investors to pick between the tremendous number of investment managers.

Grasping a Manager Universe (Benchmark)

The investment management world is large and broad, enveloping numerous managers, funds, and investment styles. It very well may be a troublesome task for an investor to pick a vehicle for their investments.

Manager universe (benchmark) data is one of the two fundamental ways of passing judgment on the relative performance of an investment vehicle, for example, a mutual fund or hedge fund, to assist with settling on an investment choice. The other is versus an index benchmark. The former supplements the last option.

For instance, take the universe of actively managed investment-grade bond funds. Say certain funds that have a large percentage of corporate bonds when compared to a benchmark index beat their peer group average in a period of wide yield spreads. All of these funds, in any case, took on more credit risk than the index to create this outperformance. The relative comparison of these funds versus the index is hence limited.

This is the point at which the manager universe (benchmark) comparison is valuable, as it then considers logical comparison of comparative funds during a specific time span. As opposed to taking a gander at every one of the funds that outperformed the index, an investor can compare comparative funds in a peer group with each other and examine factors, for example, performance as well as risk profiles.

Assessing a Manager Universe (Benchmark)

Two companies that spend significant time in manager universe comparisons are Morningstar and Lipper. Asset managers, fund companies, and financial go-betweens perceive benchmarking and characterizations from these two companies as industry standards.

All for instance, Lipper positions mutual funds in its manager universe (benchmark) groups in view of five metrics: total return, predictable return, capital preservation, tax productivity, and expenses. The top 20% of funds in every category receive the highest ratings and are named Lipper Leaders. The company names leaders for three-, five-, and 10-year periods for every category, as well as overall.

Lipper Leaders assist investors with concluding which funds meet their investment objectives and match their inclinations, in spite of the fact that they don't endeavor to anticipate future performance.

Benefits and Disadvantages of a Manager Universe (Benchmark)

Assessing a manager universe (benchmark) data is a way for investors to comparison shop for funds. While past performance doesn't give knowledge into future performance, realizing that a fund is among the leaders in both total return and steady returns among its peer group for a long time, for instance, gives valuable data and experiences.

This type of research has shortcomings, nonetheless. Broad manager universes make it challenging to compare the performance of managers who have various styles. For instance, a universe of large-cap value managers in some cases pits the performance of a dividend growth strategy with a high dividend strategy.

There likewise is survivorship bias, implying that managers with poor performance records get dropped from the universe and the universe doesn't present a complete image of all managers' performance.

Finally, decisions from a manager universe (benchmark) data throughout short time periods are limited, since leadership will in general change frequently.

Highlights

Morningstar and Lipper are two companies that perform manager universe (benchmark) comparisons.
Broad manager universe (benchmarks), nonetheless, can make it challenging to compare the performance of managers who have different investment styles.
A manager universe (benchmark) assists investors with making apple-to-apple comparisons among investment managers to figure out who is the best performer and why.
A manager universe (benchmark) likewise has survivorship bias, implying that managers with poor performance records get dropped from the universe.
Looking at the performance of one investment manager to their peer group is finished through a manager universe (benchmark).
A manager universe (benchmark) alludes to a peer group analysis of investment managers who have a similar investment style.