What is a major downside of custom security based benchmarks?

Custom security-based benchmarks often lack transparency because they can include non-public components. This means that the specific securities or factors included in the benchmark may not be fully disclosed to the public, making it challenging for investors to understand how the benchmark is constructed and how it may perform relative to the portfolio being measured.

The lack of transparency can also lead to difficulties in replication and can hinder comparisons with more traditional, standardized benchmarks. In contrast, standard benchmarks typically consist of publicly available indices that investors can easily analyze and understand. This transparency is crucial for investors who are seeking to evaluate performance and risk comprehensively.

The other aspects of this type of benchmark—such as cost and usability—do not inherently relate to the major drawback of transparency. While standard benchmarks might offer better cost efficiency and usability, this does not address the primary concern regarding the information asymmetry present in custom benchmarks.