Practical Portfolio Performance Measurement and Attribution, Second Edition

Appendix C

EIPC Guidance for Users of Attribution Analysis⁹

DEFINITION

Return attribution is a technique used to analyse the sources of excess returns of a portfolio against its benchmark into the active decisions of the investment management process.

PREAMBLE

Return attribution is becoming an increasing by valuable tool not only for assessing the abilities of asset managers and identifying where and how value is added but also for facilitating a meaningful dialogue between asset manager and client.

In this guidance we have chosen the term “return attribution” rather than the more common “performance attribution” to emphasise the distinction between return and risk, on the one hand, and to encourage the view of performance as a combination of risk and return or the other hand.

Risk and risk attribution are equally valuable tools for assessing the abilities of asset managers; however, in this note we have focused on the attribution of historic returns.

Over the years many different forms of attribution techniques have been developed with varying degrees of accuracy. Additionally, attribution results may be presented in a variety of different formats, which in some cases may lead to different conclusions being drawn.

The following list of questions has been provided to assist the user of attribution analysis to gain the maximum value from the presentation.

QUESTIONS:

1. Does the attribution model follow the investment decision process of the asset manager?

Comment: Attributing ...