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The Westwicke Blog is designed to deliver information and insights into the ever-changing world of investor relations and the capital markets, with a specific focus on the healthcare industry.

Good Benchmarking Starts with the Right Index

Posted on March 6th, 2013. Posted by

Good Benchmarking Starts with the Right Index

All management teams and boards of directors want to know how they’re doing. For public healthcare companies, the wide variety of stock indices makes it easy to draw a comparison with peer companies. But finding the right index is key to making a meaningful comparison. Just because an index includes “technology,” “healthcare” or “mid-cap” in its name doesn’t mean it’s right for you. And the most popular indices are not always the right choices.

Fund managers, especially those who may not understand nuances in various healthcare sectors, will use an index to evaluate your firm’s performance. But, comparing against the wrong index can have serious implications:  for instance, if an index that includes many larger cap companies (over $1 billion in market capitalization) is rising, but smaller companies aren’t sharing this momentum, then your smaller firm will compare poorly against the index – and undeservedly so.  Further, smaller companies are more vulnerable to certain financial issues than multi-billion dollar firms; access to capital, product pipelines and market volatility can have an outsized effect on a small-cap firm’s stock performance.

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