@article {Aked74, author = {Mike Aked and Rob Arnott and Omid Shakernia and Jonathan Treussard}, title = {Hobbled by Benchmarks}, volume = {44}, number = {2}, pages = {74--88}, year = {2017}, doi = {10.3905/jpm.2018.44.2.074}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In 2003, at the NMS Endowments and Foundations Conference, Peter Bernstein suggested that policy portfolios are overused, leading to excessive tracking-error constraints. In a 2004 article in this journal, Rob Arnott showed that the 20 largest U.S. corporate pension funds were willing to accept 12\% annual volatility in total return, 15\% volatility relative to liabilities, but only 2.5\% tracking error relative to peers. Today, the use of policy portfolios is as dominant as it was 15 years ago; policy portfolios and their respective benchmarks continue to be a largely home-centric 60/40 allocation. In the view of the authors, there should be no debate on the benefits of broadly (i.e., globally) diversified policy portfolios. Broad diversification is a requirement for actively adding value over time. The authors believe that long-only investors can translate the lightly correlated sources of excess returns from the long{\textendash}short space to their portfolios. They hope that investors will hear their plea: Please diversify your benchmarks.TOPICS: Retirement, portfolio construction}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/44/2/74}, eprint = {https://jpm.pm-research.com/content/44/2/74.full.pdf}, journal = {The Journal of Portfolio Management} }