What's a benchmark? What does it do, and why do you need to select one? A benchmark is your guide for building a stock portfolio. Fisher Investments believes you can use any well-constructed index as a benchmark -- examples are in Table 3.1. By studying a benchmark's (i.e., the index's) make-up, Fisher Investments believes an investor can assign expected risk and return to make underweight and overweight decisions for each industry. This is just as true for a sector as it is for the broader stock market, and there are many potential Energy sector benchmarks to choose from. (Benchmarks will be further explored in Chapter 7.)
So what does the Energy sector investment universe look like? It depends on the benchmark, so choose carefully! Fisher Investments knows the US Energy sector looks very different from that of Europe, Japan, and the Emerging Markets.
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