Attribution refers to a quality or characteristic. With regards to the investment community attribution is often analyzed to assess a fund’s performance and therefore the abilities of the portfolio or fund manager. Attribution analysis shows the impact of the manager’s investment decisions with regard to the overall investment strategy, asset allocation, security selection and activity. A fund or portfolio’s returns (by decomposing the overall portfolio) are compared to a benchmark in order to determine whether a manager is actually skilled or just lucky. It answers the question “where did the return come from?”
While excess return provides an overall portfolio performance figure, attribution decomposes this figure down to sector- and security-level. It is broken down into:
- Allocation Effect: Contribution of the tactical asset allocation to total relative performance.
- Currency Effect: (Optional) Part of the allocation effect due to currency management vs. currency reference benchmark.
- Selection Effect: Contribution of managerial stock selection ability to the total relative performance.
- Interaction Effect: Measures the combined impact of stock selection and asset allocation decisions within asset classes. Interaction can be shown separately or combined with selection.
Equity attribution can analyze investment decisions on segment level (top-down attribution) for asset allocators or on stock level (bottom-up) for stock pickers.
StatPro Revolution provides advanced equity attribution following the standard Brinson methodology. It breaks down a portfolio’s performance into allocation, selection and optionally, interaction. Attribution analysis can be calculated in StatPro Revolution using either the arithmetic (GRAP) or geometric approach.
The attribution models offered in StatPro Revolution are:
- Top Down Attribution
- Bottom Up Attribution
- Multi-currency attribution
Fixed income attribution
Fixed income attribution breaks down the return of a fixed income portfolio (or a fixed income section of a balanced portfolio) into its detailed components, showing what the return drivers were. The main components of fixed income attribution are:
- Carry: the return earned from collecting coupon payments
- Yield Curve: the return earned owing to shifts and moves in the yield curve
- Spread: return earned owing to change in the spread between fixed income instrument yield and the yield curve
- Currency: gains or losses made on changes in fx rates (only applicable for multicurrency portfolios).
Stock-level attribution is particularly useful if the investment style is bottom-up and managers want to see the impact of the individual stock picks.
More information about attribution from StatPro
- Carl Bacon – a detailed overview of stock-level attribution within StatPro Revolution
- Carl Bacon – attribution types in portfolio analytics