Manager Universe (Benchmark)

Manager universe - benchmark refers to a peer group of investment managers who have the same investment style.

Manager universe data is often used to compare and evaluate the performances of money managers.

Manager universe - benchmark data is one of the two main ways to judge relative performance of an investment vehicle such as a mutual fund. The other is versus an index benchmark. The former complements the latter.

For example, take the universe of actively managed investment-grade bond funds. Say many with a large percentage of corporate bonds than the index tend to beat their peer group average in a period of wide yield spreads. However, all of these funds took on more credit risk than the index to generate this outperformance. The relative comparison versus the Treasuries-heavy index is therefore limited.

This is when the manager universe- benchmark comparison is useful, as it then allows for an apples-to-apples comparison of similar funds during a specific time period.

Two companies that specialize in manager universe comparisons are Morningstar and Lipper. Asset managers, fund companies and financial intermediaries recognize benchmarking and classifications from these two companies as an industry standards.

For example, Lipper ranks mutual funds in all of its manager universe - benchmark groups based on five metrics: total return, consistent return, capital preservation, tax efficiency and expenses. The top 20% of funds in each category receive the highest ratings and are named Lipper Leaders. The company names leaders for three-, five-and 10-year periods for each category, as well as overall.

Lipper Leaders help investors decide which funds meet their investment goals and match their preferences, although they do not attempt to predict future performance.

Evaluating manager universe - benchmark data is a way for investors to comparison shop for funds. While past performance doesn’t provide insight into future performance, knowing that a fund is among the leaders in both total return and consistent returns among its peer group for many years, for example, provides useful information and insights.

This type of research does have shortcomings, however. Broad manager universes make it difficult to compare the performance of managers who have different styles. For example, a universe of large-cap value managers sometimes pits the performance of a dividend growth strategy with a high dividend strategy.

There also is survivorship bias, meaning that managers with poor performance records get dropped from the universe and the universe doesn't present a complete picture of all managers' performance.

Lastly, conclusions from manager universe - benchmark data over short time frames is limited, since leadership tends to change often.