Copying and distributing are prohibited without permission of the publisher
Understanding indices and benchmarks
07 March 2014
NAPF publishes new guide to help pension funds
The National Association of Pension Funds (NAPF) has published
a guide to help pension funds get to grips with indices and
benchmarks and how best to use them. This guide is the latest
addition to the NAPF’s made simple series. It
looks at how indices work and how they can be used by pension
funds when looking at their investment strategies, whilst
demystifying jargon such as 'smart beta’.
Joanne Segars, chief executive, NAPF, said: "Pension funds have
a huge responsibility over the assets of their scheme members
and using indices and benchmarks can be a valuable way of
measuring and comparing performance against a range of external
factors to ensure the investment strategy is on track.
"But over a relatively short timeframe indices have evolved
significantly to become a series of far more complex and
sophisticated reference points designed for a multitude of
purposes and outcomes. This can be both useful and deeply
complicated for pension funds, which is why we are pleased to
add this guide to our made simple series."
Typically indices are used by pension funds as a measurement
tool - as a benchmark for measuring market performance or as a
gauge of how a portfolio manager’s investments
have performed against an index. But indices have evolved
significantly over recent years and today they can be used in a
number of different ways and for a series of varying
Shamindra Perera, head of UK institutional at Russell
Investments, commented: "Indices and benchmarks are an
important element of a pension fund’s toolkit.
What began as basic measures of broad market performance
against which actively-managed investments might be measured,
have evolved to also provide a remarkable range of options to
investors seeking different exposures and approaches to risk
"As indices continue to develop, Russell feels it is important
for investors to understand what it is they are choosing, and
exactly how they intend to use it. In working with the NAPF to
produce this guide, our aim is to help support trustees and
pension managers do just that and gain a better understanding
of these essential investment tools."