Practical Portfolio Performance Measurement and Attribution, 3rd Edition

Glossary of Key Terms

Abnormal return

A return that appears to misrepresent the true economic performance of the asset being measured.

ABOR

The accounting book of record. The official book of record aligned with regulatory and asset owner requirements.

Active risk

Risk relative to the benchmark. The standard deviation of excess return, otherwise known as relative risk, tracking error or tracking risk.

Active share

A measure of the percentage difference of security holdings in the portfolio as opposed to the benchmark.

Adjusted M²

Return adjusted for risk, skewness and kurtosis.

Adjusted Sharpe ratio

Sharpe ratio adjusted for skewness and kurtosis.

Allocation

The effect of weight allocations between asset classes, regions, countries, sectors and investment categories.

Alpha

Excess return adjusted for systematic risk.

Annualised return

The annual return which when compounded with itself will generate the cumulative return over multiple years.

Asset class

A class of investments with distinct risk/return properties, homogeneous, mutually exclusive and diversifying.

Asset manager

An investment advisory firm or financial institution making investment decisions on behalf of, and managing the assets of, asset owners.

Asset owner

Investors, typically pension funds, endowments, sovereign wealth funds, boards of investment trusts and high‐net‐wealth individuals.

Balanced strategy

An investment strategy containing two or more asset classes (not counting cash).

Benchmark ...