Marshalla Asset Management Benchmarks

January 20, 2003

Marshalla Asset Management (MAM) Performance Reports display a number of benchmark performance figures in addition to the client’s own portfolio performance figures. These benchmarks have been chosen to track the broad market performance of each of the top-level asset classes represented in our clients’ portfolios. They include one each for Equity, Real Estate, Fixed Income and Short Term Money. They are defined as follows:

   Equity – 80% Russell 3000 Index, plus 20% MSCI EAFE Index.  The Russell 3000 Index tracks the largest 3000 U.S. public companies, representing 98% of the market value of U.S. equities. The MSCI EAFE Index is a widely used index reporting the performance of the major equities markets outside of the U.S., namely Europe, Australasia and the Far East (which is the genesis of the “EAFE” moniker).

   Real Estate - NAREIT Equity Index. NAREIT publishes indices tracking all types of REITs currently trading on major U.S. exchanges. The NAREIT Equity Index tracks  the equity-based REIT’s, but excludes mortgage based and hybrid equity/debt REITs.

   Fixed Income – Lehman Brothers Aggregate Bond Index. The Lehman Brothers Aggregate Bond Index is a widely recognized measure of the entire taxable U.S. bond market.

   Short Term Money - Three Month Treasury Bills. The Three Month T-Bill index is a reasonable proxy for the performance of short-term money markets. Unfortunately, there is no readily available index that directly tracks money market funds.

More detailed definitions of these benchmarks can be found in the Appendix.

Each client has his or her own top-level asset allocation targets defined for each of these asset classes. These could be used to create customized Client Benchmarks for each client by simply weighting the asset class benchmarks in proportion to the client’s own top-level asset allocation targets.

Benchmarks have many useful purposes, but they are all too often misinterpreted or misused. To better understand the meaning and appropriate use of market benchmarks, please see the companion piece, “How and How Not to Use Benchmarks to Evaluate Your Investment Performance”.

Appendix

Detailed Definitions of MAM Benchmark Components

Russell 3000

Composed of the 3000 largest U.S. companies by market capitalization, representing approximately 98% of the U.S. equity market. The returns we publish for the index are total returns, which include reinvestment of dividends. 

MSCI EAFE

Widely accepted as a benchmark for international stock performance, the EAFE Index is an aggregate of 21 individual country indexes that collectively represent many of the major markets of the world. The returns we publish for the index are total returns, which include reinvestment of dividends. “EAFE” refers to Europe, Australasia, and Far East. “MSCI” is the name of the company that computes this index.

NAREIT Equity Index

The NAREIT Indices track all REITs currently trading on the New York Stock Exchange, the NASDAQ National Market System and the American Stock Exchange. REITs are divided into three types, Equity, Mortgage and Hybrid. We use the Equity index since our Real Estate asset class represents real estate equity, not the mortgages held by real estate owners. Such mortgages would be considered part of our fixed income asset class.

Lehman Brothers Aggregate Bond Index

The Lehman Brothers Aggregate Bond Index is a widely recognized measure of the entire taxable U.S. bond market. The index consists of more than 5,000 U.S. Treasury, federal agency, mortgage-backed, and high-quality corporate securities, with a total market value exceeding $4 trillion. The average duration of this index is typically similar to that of an intermediate term bond fund, or perhaps a little longer.

3-Month Treasury Bill

Three-Month T-bills are government-backed short-term investments considered to be risk-free and as good as cash because the maturity is only three months. Morningstar collects yields on the T-bill on a weekly basis from the Wall Street Journal. We use the Three Month T-Bill index as a proxy for short-term money markets because their returns and stability of principal are similar.