Although this chapter is the shortest in the book, the length is not indicative of the importance of performance attribution. Performance attribution is a critical process. It is the report card that explains to both the fund managers and to investors how the fund has earned its return. Have returns been generated by passive strategies, such as being long interest rates as rates have declined or being long tech during the Internet bubble? Or has alpha been generated by active strategies through nimble market timing, deft stock picking, or targeted pairs trading?
Investors should value varying sources of returns ...