What should an appropriate benchmark align with when evaluating a portfolio?

An appropriate benchmark should align with the fund's objectives and constraints because benchmarks are essential tools for assessing the performance of an investment portfolio against a relevant standard. The benchmark reflects the specific goals the fund is trying to achieve, such as return targets or risk parameters. By matching the benchmark with the fund's objectives, investors can determine whether the portfolio is performing as expected in relation to its intended strategy.

Using a benchmark that aligns with a portfolio’s objectives allows for a more accurate assessment of performance relative to a suitable set of expectations. It considers factors such as asset allocation, investment style, and risk tolerance. Consequently, if the investment objective is growth-oriented, a growth index would be a suitable benchmark. If the fund has specific constraints, such as liquidity needs or investment restrictions, those should also be reflected in the chosen benchmark to ensure a meaningful comparison.

While investor preferences, market trends, and economic indicators can provide context and insights, they do not directly inform the suitability of a benchmark in the same way that a fund’s specific objectives and constraints do. This alignment with the fund's parameters ensures that the performance evaluation is relevant and constructive.