Performance attribution

Article

Performance attribution

Investment performance under the microscope

When assessing a fund manager’s performance, it is common practice to benchmark their performance. Regardless of the benchmark, a fund manager is deemed to have performed well if the excess performance is positive, while a negative excess performance represents a poor performance.

Executive summary

While consistent positive excess performance is considered the 'Holy Grail' of the fund management industry, too little emphasis is placed on how the excess performance is actually achieved. The focus is typically put on the size of the excess performance and not on
how it was achieved by the fund manager.

Was it achieved through superior stock selection or good asset allocation? Simply looking at the size of the excess performance will not answer this question. A more refined tool is needed to break down this excess performance, which is where performance attribution comes in.

In this article, we propose to review the subject of performance attribution. In the first section, we explain what performance attribution is and is not and show why different models exist to meet different needs.

In the second part, we provide a detailed review of the different attribution models for equity portfolios. We touch up on the issue of linking attribution effects, as it is one of the most challenging steps in practice. In the last part, we show how attribution analysis can be used by fund managers and investors.
 

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Performance issue 12 - September 2013

Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients. 

PDF file - size: 10.4mb
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