Benchmark your portfolio against any stock, ETF or fund

When you track your investments with Sharesight, you can benchmark your portfolios against any of the 750,000+ global stocks, ETFs, funds and unit trusts that Sharesight supports. This gives you the power to compare and contrast the performance of your portfolio against a world of investments, making it easier than ever to make informed investment decisions. To learn more about the importance of benchmarking your portfolio and how you can do this with Sharesight, keep reading.

What is benchmarking?

Typically used by fund managers, a benchmark is a standard against which the performance of a fund (or portfolio of assets) can be measured. In many cases, this benchmark will be in the form of a market index that approximately reflects the asset allocation of the fund or portfolio. This gives insight into the value of a fund or fund manager, as investors can clearly see whether they are "beating the market".

Why should investors use a benchmark?

Benchmarking your portfolio is a powerful tool for evaluating performance and refining your investment strategy. By comparing your portfolio's returns to a relevant market index or benchmark, you gain deeper insights into how well your investments are performing relative to the broader market.

One key benefit of benchmarking your portfolio is that it helps distinguish whether your returns are driven by overall market trends or your individual investment choices. If your portfolio's performance closely tracks its benchmark, it suggests that your returns are largely influenced by market movements rather than active decision-making. On the other hand, if your portfolio frequently diverges from its benchmark, this indicates that your returns are being shaped by your specific investment selections.

Tracking a benchmark can also help you assess the effectiveness of your investing strategy. For example, if your portfolio consistently underperforms compared to its benchmark, it may be a sign that your strategy needs adjustment. In some cases, investors who struggle to outperform a benchmark may decide to allocate more of their money into index funds or ETFs that track the benchmark itself, rather than trying to beat the market through stock picking or active management.

Additionally, benchmarking provides a useful point of reference for setting investment goals and measuring progress over time. By regularly comparing your performance to a benchmark, you can identify trends, evaluate risk-adjusted returns, and make more informed decisions about rebalancing or adjusting your portfolio.

How to choose a benchmark for your portfolio

While there are many different benchmarks you could choose for your portfolio, index-tracking ETFs tend to be a popular choice for investors. This is because they closely mimic real-world investment conditions, factoring in fees, dividends and any franking credits that may apply.

When selecting a benchmark, the first thing you should consider is whether it aligns with your portfolio’s asset allocation and investment strategy. For example, a US investor with a portfolio heavily weighted in technology stocks might find a NASDAQ 100 Index ETF to be a suitable benchmark, as it primarily tracks major tech companies. On the other hand, an investor with a diversified global portfolio may prefer a broad-market ETF, such as one tracking the MSCI World Index, which includes stocks across multiple sectors and regions.

Another important factor to consider is whether your portfolio is actively or passively managed, and whether you’ve chosen a benchmark to match your approach. If you are the type of investor that frequently adjusts your holdings in an attempt to outperform the market, you should ensure that you choose an actively managed asset as your benchmark, and vice versa for long-term buy-and-hold investors. It’s also worth noting that if your portfolio consistently underperforms its benchmark, this may indicate that a passive investing strategy, such as investing index-tracking ETFs, could be a more effective approach.

How to add a portfolio benchmark in Sharesight

To add a benchmark to your portfolio on Sharesight, simply navigate to your portfolio’s Overview page, scroll down to the Summary section below your performance graph and click “Add a benchmark”. You will then be prompted to select a commonly used benchmark or search for the benchmark of your choice from any of the 750,000+ investment instruments supported by Sharesight.

Once you have added a benchmark to your portfolio, you will see a comparison of your portfolio’s total return against the benchmark, broken down by capital gains, dividends and currency gain. You can also see a visual representation of your portfolio’s performance against the benchmark by selecting "Graph Performance Index" in the dropdown menu above your performance graph. This is a quick and easy way to see where your portfolio has followed or diverged from its benchmark over time.

An example of a portfolio that diverges from its benchmark.

How benchmarking works in Sharesight

Sharesight’s benchmarking tool assumes a common investment amount and start date to calculate the benchmark’s performance. In the example above, we’ve selected a time period of "since first purchase", which will set the benchmark start date to the date of the first holding purchased in the portfolio – though there are other options available.

To make the most of the benchmarking tool, make sure to read our step-by-step guide to benchmarking as well as our Help section on how to interpret the return index graph.

Upgrade today to benchmark your portfolio

Benchmarking is available to all Sharesight users on starter, investor, expert and professional plans. To access this feature, upgrade today!

FURTHER READING

• Sharesight Help – Benchmarking
• How to track exchange-traded funds (ETFs)
• 7 reasons to upgrade your Sharesight account