Fisher Investments’ performance is measured by its relative performance to appropriate benchmarks. A common investment objective is to beat the market, but few investors identify a market to beat—making success hard to ascertain. Fisher Investments uses broad equity indexes (e.g. S&P 500, MSCI World, etc.) as proxies of market performance and to act as benchmarks against which Fisher Investments’ performance success is measured.
Relative Vs. Absolute Return
However, even when measuring success against a benchmark, some investors forget the importance of relative vs. absolute return. For instance, 5% may not seem like much in absolute terms, but if an investor achieves 5% when the market is down 15%, the investor has beaten the market by 20%. Likewise, a 10% absolute return might sound good, but if the market returns 20%, the investor would have lagged the market by 10% in relative terms. Fisher Investments seeks to beat the market, relative to the benchmark, over time.
Benchmarks & Time Horizon
An appropriate benchmark takes into consideration a client’s time horizon (how long the portfolio’s assets need to be working) and investment objectives. The appropriate benchmark provides a framework to construct the portfolio, measure risk, and monitor Fisher Investments’ performance by comparing return rates over time. Tactically, a portfolio should be structured with the goal of maximizing the probability of Fisher Investments’ performance beating the benchmark over time, thus maximizing the likelihood of long-term success. Unlike simply aiming to achieve a fixed rate of return each year—possibly disappointing when markets face large rallies or potentially unrealistic when markets are very weak—we believe a properly benchmarked portfolio provides a realistic guide for dealing with uncertain market conditions.