What is a custom security-based benchmark?

A custom security-based benchmark is designed specifically for a portfolio manager's investment strategy, reflecting the characteristics of the securities they choose to invest in. Option B accurately describes this as it emphasizes the manager's research universe, which is weighted according to the unique investment approach or style that the manager employs. This tailored benchmark allows for a more accurate assessment of the portfolio’s performance by comparing it to a representative set of securities that the manager might realistically select from.

In contrast, a fixed index tracking market performance does not account for the specific nuances of an individual manager's strategy or the securities they prioritize. An average of sector benchmarks lacks the individual specificity that a custom benchmark provides, making it less effective for measuring relative performance against a targeted investment strategy. Lastly, a standardized portfolio allocation is more generic and does not consider the unique factors or weighting that a particular manager might utilize, thereby failing to align with customized investment strategies.