What is the best benchmark for ETF?
In some cases, the best benchmark is obvious since the ETF is by definition tracking an index
that is defined as its benchmark. In other cases, there can be more differences of opinion
about how broadly or narrowly a benchmark should be defined. For instance, for an AI ETF,
the most obvious benchmark could simply be the US Nasdaq index, which is dominated by
technology companies including those active in various areas of AI.
However, some investors might want to select a more specialist index that is more precisely focused on AI, and even here there can be some debate over sub-sectors of AI. Some AI products are focused mainly
on semiconductor chip makers, such as Nvidia, while others could emphasise applications of
AI, such as autonomous driving. In some cases, investors might want to build a blended
benchmark made up of several different benchmarks to get the most sensible fit.
