Knowledge Base
Compare fund performance against indices and benchmarks
Which term does the AMF recommend using when the reference framework does not meet all the expected construction standards of an index as defined by the BMR regulation?
The AMF recommends using the term 'indicator' rather than 'index' when the reference framework does not meet all the requirements of the BMR regulation. This clarifies that the reference framework used does not benefit from the same guarantees as a regulated index.
Which article of the BMR regulation requires the drafting and maintenance of written continuity plans for benchmark indices?
Article 28 of the BMR regulation requires management companies to draft and maintain written continuity plans describing the measures to be taken in the event of substantial modification or discontinuation of an index. This ensures continuity of management even in the event of disruptions.
What information must be included in the KIID regarding benchmark indices according to the ESMA Q&A of March 2019?
The KIID must contain an explicit statement on whether management is active or passive, a definition of the concept of 'index-referenced management,' and a description of the degree of freedom relative to the indicator. This information may take the form of a qualitative or quantitative description.
What are the cumulative criteria for selecting an appropriate benchmark index according to AMF position DOC-2011-05?
The selection of a benchmark index must satisfy several criteria: representativeness, measurability, unambiguity, appropriateness to the management strategy, investability, and methodological transparency. These criteria are essential to ensure that the chosen index is suitable for the fund's investment universe.
The arithmetic performance differential is preferable for multi-period comparisons.
The geometric method is preferable for multi-period comparisons because it accounts for the compounding of returns over multiple periods. The arithmetic performance differential is better suited for single-period comparisons.
The arithmetic method is always more precise than the geometric method for comparing performance over a single period.
The arithmetic method is simple and straightforward for a single period, but it may be less precise as it does not account for compounding effects. The geometric method is generally more precise even for a single period because it considers compound returns.
Categorize items by dragging them to the appropriate zones
Items to categorize:
Benchmark regulation obligations
AMF recommendations
The Benchmark regulation imposes specific obligations such as drafting written continuity plans and verifying index administrators on the ESMA register. AMF recommendations include using the term 'indicator' for non-compliant reference frameworks and defining the concept of index-referenced management in the KIID.
(1+Rf)/(1+Rb)-1
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The formula for calculating outperformance using the geometric method is (1+Rf)/(1+Rb)-1, where Rf is the fund return and Rb is the benchmark return. This method is more precise for multi-period comparisons.