Portfolio Performance Evaluation Benchmark: A Note

Jones and Swaleheen (2014) examine the performance of an equity portfolio in a student managed investment fund and document the out-performance of the portfolio relative to the S&P 500 index on an absolute basis. We show that the apparent out-performance of the portfolio is due to using the index without its dividend component. Once we use the S&P 500 total return as the benchmark, the out-performance of the equity portfolio disappears. We explain why the S&P 500 total return should be used in this case, and propose and justify two alternative proxies for the S&P 500 total return.