Portfolio Benchmarking: Comparing Apples to Apples

This post is overdue and should have been part of my year end results but I was short on time. I’ve been measuring my portfolio’s performance against the Toronto Stock Exchange for a simple reason: I wanted an easy way to compare the ROI of a dollar I manage compared to a dollar in my RRSP balanced indexed funds. Most fund managers diversify so much they end up mimicking the index in the end so the TSX seemed just fine.

Obviously, my approach did not satisfy everyone, and rightfully so. Most of the criticism I received pointed out to being overweight in small caps which is correct. Let’s rectify things by doing a proper benchmarking:

2010 Total Returns
S&P/TSX SmallCap +31.32% +92% +80%
XCS – S&P/TSX SmallCap Index Fund +34.37% +92% +80%

Going forward, these numbers will be included in the end of year results as they are the numbers that count the most. I went with what the readers proposed for benchmarking: the XCS ETF (TSE:XCS) and the TSX sub-index for small caps.

Finally, just like a Hollywood producer decides to make the hero’s gun an ammo factory with which he kills entire groups of bad guys without reloading, as the producer here, I wish to keep it simple and continue using the TSX for benchmarking in my monthly updates. After all, my whole point is to compare returns between my indexed RRSP funds and my actively managed account. Now that we‘ve put this issue to rest, time to focus back on the task on hand in 2011.