Being Benched

by Jamie Hyndman, Mawer Investment Management

Earlier this week, Vanguard announced they are changing benchmark providers. They are switching from MSCI to FTSE for their international products, and to the Center for Research in Security Prices for their U.S. products. While the move has received a great deal of media coverage, no one at Mawer Investment Management has lost any sleep over it.

We pay little attention to benchmarks. In fact, we are ambivalent as to whether our portfolios look similar to a benchmark or are completely different from it. What’s important to us is that the companies we own are wealth creating, have excellent management teams, and trade at attractive valuations.

Having said that, we are acutely aware of the existence of benchmarks because each quarter-end many of our clients use them to evaluate our performance. Yet in our minds, the degree to which benchmarks have permeated the investment industry is a shame. Terms like “tracking error” speak volumes about where the industry is at with respect to benchmarking. Tracking error suggests that it is a mistake to have a portfolio that is different from that of a benchmark – we beg to differ.

Why should we feel pressured to mimic a benchmark and invest in what we might consider to be unattractive investments? There are numerous examples of companies that once dominated their indices but turned out to be poor investments. Nortel and Research in Motion are a few such examples.

Despite the prevalence of benchmarks in our industry, we intend to remain agnostic in our approach to them. Instead, we will continue to focus on our disciplined investment approach and our long-term view on investing. Although this can lead to being benched in the short-term, we are confident it is the right approach in the long-term.

Jamie Hyndman

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