Blog

Benchmarking your portfolio against ETFs

by Doug Morris, CEO, Sharesight

If you haven’t switched on the benchmarking feature in Sharesight, give it a try. You can track the performance of your portfolio against our universe of ETFs.

Most Sharesight clients build their own portfolios with an eye towards DIY diversification that suits their expectations and risk tolerance. This means benchmarking against a single stock market or index isn’t ideal.

A common client request has been to allow for benchmarking against a diversified portfolio. Typically, “diversified” means some combination of underlying assets that combine to form everything from a conservative to a growth strategy.

There’s an ETF for that

To get started, look at the ETFs listed over at the ETF database in their “diversified” section - any of these that trade on markets Sharesight tracks are a good place to start. For example, Vanguard just announced the launch of four diversified ETFs in Australia, ranging from conservative to high growth. These new Vanguard ETFs are:

Broadly the new Vanguard ETFs look like this:

Featured-diversified-etf

Why benchmark your portfolio against ETFs?

Benchmarking against the “index” or the “S&P” is purely theoretical. If you were actually going to invest in the market you’d have to do it through a security of some kind (or by recreating the index yourself).

Too many investors have been conditioned to compare their portfolios against the index prices they see online and in the news.

ETFs are a superior benchmark because they’re a legitimate investment option and they take into account all the inner workings of a real portfolio, including fees, dividends and any franking credits that may apply.

How to select ETFs as a portfolio benchmark

Within the advanced options menu above the chart on the Portfolio Overview page, you’ll find an option for selecting your benchmark instrument:

Advanced Options Benchmark ETF

Type the ETF market code in the Benchmark Instrument field (in the image above, we entered the VDBA.AX Vngd Div Balance Etf Units code), and click apply.

Then select the “Graph performance index” option in the chart type drop-down menu to see your performance against the benchmark:

Graph Performance Index ETF

Our calculation engine assumes a common investment amount and start date to show you a true comparison – both in terms of raw data, and in the chart. In this instance we’ve selected a time period of one week – as these new Vanguard ETFs are only new to the market and will not have price data for earlier periods.

Make sure to read Sharesight’s step-by-step guide to benchmarking as well as our Help section on how to interpret the return index graph.

Benchmarking is available to all Sharesight clients on Investor, Expert, and Sharesight Pro plans – to access this feature upgrade today!

Further information