Managed portfolio benchmarks

Since “benchmark” is occasionally alluded to in the market commentaries, it would be helpful to clients, especially those thinking of adding a new managed portfolio, to know what these benchmarks are that the managed portfolios are measured against.

That’s essentially the whole point of this post. But to give something back, let me show you what I’ve been doing in order to have some sort of benchmark to compare my managed portfolio with.

I’ve had a Growth 8 portfolio since 2022-12-19. It is made up of 76% equities, 23% bonds and 1% cash. I need a low-cost, ready-made portfolio with open pricing data to compare it with, and end up choosing Vanguard LifeStrategy 80%, consisting of 80% equities + 20% bonds.

I got the Growth 8 portfolio’s balance history from my InvestEngine dashboard, and the historical prices of Vanguard LifeStrategy 80% since 2022-12-19, and plotted two graphs:

The time series plot tells you that the two portfolios move in the same direction most of the time. The scatter plot of growth percentages further confirms that the magnitudes of change are almost percent-for-percent. If this linear relation holds, the two portfolios have practically identical performance.

What’s the point of this comparison, you may ask. Sometimes it’s useful to understand a new product using a more familiar product as the anchor. For instance: if I were a newcomer to InvestEngine, and I had a Vanguard LifeStrategy 80% before, if a comparison like this is made available, I’d probably be comfortable accepting that a Growth 8 portfolio is right for my risk appetite. (Disclaimer: Not financial advice!)

Of course this is just an amateur’s view, with what data is available at hand. Things that may cause a professor to give this analysis a failing mark:

  • The InvestEngine portfolio’s value is after fees. Vanguard LifeStrategy 80%’s is before fees.
  • The time window is short, just a little over a month.
  • The market has been mostly sane during this time. But it often takes a little shock to the market to separate the wheat from the chaff.

thanks for posting graphs chungf,

i too was thinking of the same question regarding my 1st managed portfolio which started 31/12/22, the downward bump of 19th jan is reassuringly the same as mine!

Would be interesting to see how it compares longer term. With re-balancing or adjusting risk every quarter the correlation may change over time.