A client, Mr. Henderson, informs his mutual fund representative that he is very pleased with his portfolio's 15% return last year. The representative reviews Mr. Henderson's statements and notes that the S&P/TSX Composite Index, a relevant benchmark for his Canadian equity-heavy portfolio, returned 22% over the same period. What is the most appropriate way for the representative to interpret this information for Mr. Henderson?

Question: A client, Mr. Henderson, informs his mutual fund representative that he is very pleased with his portfolio's 15% return last year. The representative reviews Mr. Henderson's statements and notes that the S&P/TSX Composite Index, a relevant benchmark for his Canadian equity-heavy portfolio, returned 22% over the same period. What is the most appropriate way for the representative to interpret this information for Mr. Henderson?

Answer options:

• Mr. Henderson's portfolio significantly outperformed the market. ✅ Mr. Henderson's portfolio performed below the market benchmark.
• The benchmark is irrelevant as Mr. Henderson is happy with his return.
• The representative should advise Mr. Henderson to immediately switch to an index fund.

Correct answer: Mr. Henderson's portfolio performed below the market benchmark.

Explanation: Comparing a client's portfolio return to an appropriate benchmark helps determine if the portfolio performed well relative to the broader market or a similar investment strategy. In this case, 15% is less than the benchmark's 22%, indicating an underperformance.