Equities are investments in stocks, offering higher potential returns but also greater risk. Fixed income refers to lending money to borrowers, providing steady and predictable income with lower risk but also lower returns. Asset managers at pension funds and insurance companies typically handle both, balancing a portfolio’s risk and reward.
Equity Index (The Stock Scoreboard) is a basket of many companies grouped together, such as the Nikkei 225 or S&P 500, which serve as benchmarks. These indexes track overall market performance and help asset managers decide whether it is worthwhile to keep individual stocks they have invested in, as well as to evaluate their own performance.
Fixed Income Index (The Bond Scoreboard) represents lenders such as large pension funds and insurance companies that seek steady income by collecting interest from borrowers. These borrowers are typically governments (like Japan or the US) or large blue‐chip corporations (such as Toyota, Apple, or Sony) that raise billions of dollars at once. Because tracking all these bonds individually is complex, a fixed income index provides a useful benchmark.
While an Equity Index is mainly used by investors and asset managers, a Fixed Income Index is used by those responsible for lending decisions in pension funds and insurance companies. In practice, both indexes are often overseen by the same person within these institutions.
Benchmark Index
A benchmark index is a market indicator used as a standard for evaluating the performance of a fund or portfolio. For example, in Japanese equities, representative indexes include TOPIX and the Nikkei Average, while in U.S. equities, the S&P 500 is commonly used.
Portfolio managers set these indexes as target lines and compare returns over the same period to judge whether their performance was better or worse than the market. For investors, a benchmark provides an objective measure to verify whether their asset
management is appropriate. In the case of index funds, the smaller the deviation from the benchmark, the higher the fund is evaluated for its ability to track the index.
In short, a benchmark index is the yardstick investors and managers use to measure performance against the market.