A benchmark tells you, after the fact, whether you were paid for the risk you took. When a manager is judged against one every quarter, it can also pull the index’s concentrations into the portfolio.
The mechanism is simple. Deviating from the index is uncomfortable, so positions drift toward it. Major indices have become concentrated in a few large companies, and a portfolio that tracks them closely becomes concentrated too, through momentum and without anyone deciding it should.
We measure a portfolio against objectives stated in the client’s own terms: a real return above inflation, a decline the family could live through, and distributions it can rely on. These objectives can be missed, which is what makes them useful to measure against.
In some years a portfolio managed this way will trail a headline index. We accept that so the portfolio behaves as the family expects at the times it matters.