Tim Maud is an equity portfolio manager for Acme's pension plan; the portfolio he manages for Acme is currently invested in 100 percent domestic securities. The Board of Trustees has urged Maud to investigate pursuing global investments. Maud is deciding whether or not to add international equity securities to the portfolio. Maud has identified an international developed market for possible investment. He has decided to pursue an investment strategy that is invested 50% domestic market and 50% international developed market.

During the annual review of Acme's pension plan, several Trustees questioned Maud about various aspects of performance measurement and risk assessment.

In particular, one Trustee asked about the appropriateness of using each of the following benchmarks:

1. Market index
2. Benchmark custom portfolio
3. Median of the manager universe

Required

1. Explain two different weaknesses of using each of the three benchmarks to measure the performance of a portfolio. Your response must contain a total of six different weaknesses.

1. Market index
2. Benchmark custom portfolio
3. Manager universe

1. Describe three properties that a valid benchmark should have.