The market return plays a crucial role in practice of portfolio management since Markowitz’s work (1952, 1956 and 1959) on portfolio selection. In the work that followed (Sharpe, 1963 and 1964) it is assumed that the market return can be observed. In practice it is often assumed that the market return is represented by the market indices. This implies that the naïve passive portfolio management practice can be pursuit by holding a portfolio which matches the structure of a market index. The problem with such an approach is that it is implicitly assumed that cap-weighted market indices not only represent the changes in the market well but also represent an efficient portfolio of risky assets traded in the market. The latter implies that the weights in the index structure are chosen in such a way that the diversification effect is exploited to the maximum thus positioning the portfolio represented by the index on the efficient frontier of assets it is composed of (with regard to its expected return and variance). If these conditions were met a market index could provide a benchmark for passive portfolio strategies and therefore reward an investor for the exposure to systematic risk. If not there is a risk that an investor’s exposure to risk exceeds systematic risk and that the expected return doesn’t compensate the risk exposure efficiently. In the following chapter the above described problem is explored in illiquid and undeveloped environment of Croatian financial market. The efficient frontier of the CROBEX index constituents (the oldest and largest stock index of the Zagreb Stock Exchange) is calculated based on the historical data. Mean-variance optimization is applied with and without constraints with the focus on constraints since short selling is not available in the market. Position of the market cap-weighted proxy of the CROBEX index is indicated in the figure containing its constituents’ efficient frontier and analyzed. Other options for the construction of the benchmark market portfolio are being analyzed and discussed such as diversity-weighted and deconcentration portfolios instead of cap-weighted portfolios.