Too Much Certainty is a Terrible Thing: Benchmarks and the Meaning of Risk

14 March 2024

20 min read

What You Need to Know

We think the approach to benchmarking used by much of the industry should be questioned. Our thesis is that we are in a new regime, with different structural forces compared to those that existed prior to the pandemic. This raises questions about the validity of benchmarks that were set before.

We suggest that, in an environment of higher equilibrium inflation and lower real return from financial markets, inflation should play a larger role in being a benchmark for many investors. Meanwhile, in the assessment of active managers, the benchmark should probably be multivariate and take into account cheap access to factors.

This issue has implications for the meaning of risk. Is risk the deviation from a financial-market index, some measure of volatility or the loss of purchasing power?

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About the Authors

Inigo Fraser Jenkins

Inigo Fraser Jenkins is Co-Head of Institutional Solutions at AB. He was previously head of Global Quantitative Strategy at Bernstein Research. Prior to joining Bernstein in 2015, Fraser Jenkins headed Nomura's Global Quantitative Strategy and European Equity Strategy teams after holding the position of European quantitative strategist at Lehman Brothers. He began his career at the Bank of England. Fraser Jenkins holds a BSc in physics from Imperial College London, an MSc in history and philosophy of science from the London School of Economics and Political Science, and an MSc in finance from Imperial College London. Location: London

Alla Harmsworth

Alla Harmsworth is Co-Head of Institutional Solutions and Head of Alphalytics at AB. She was previously head of European Quantitative Strategy at Bernstein Research. Prior to joining Bernstein in 2015, Harmsworth worked for two years on Nomura's Institutional Investor-ranked European Equity Strategy and Quantitative Strategy team. Her previous experience includes seven years at Fidelity as a quantitative analyst and portfolio manager, along with stints at Nikko Asset Management and ABN AMRO. Harmsworth holds a BA (Hons) and an MA in philosophy, politics and economics from University College Oxford and an MSc in economics from the London School of Economics and Political Science. Location: London

Additional Contrbutors

Robertas Stancikas, Harjaspreet Mand and Maureen Hughes

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