Question

In a fact sheet, 'R-squared' (R²) of a fund relative to its benchmark measures:

Accepted Answer

The proportion of the fund's return movements that can be explained by movements in its benchmark — R-squared measures how closely the fund's returns track its benchmark. R² of 1.0 (100%) means the fund's returns are entirely explained by benchmark movements — like an index fund. R² of 0.5 means only 50% of return variation is explained by the benchmark.