Summary: This presentation will show performance analysts how the Brinson-Fachler attribution model can further evolve from three ideas. First, the total weight associated with stock selection effect should exclude the asset allocation decision. Second, the assessment of an asset allocation decision should consider the actual returns connected to that decision. Third, an excess return decomposition should exclude the impact of overlapping issue-level positions. In doing so, we’ll see how the evolved model is void of interaction effects, how it is functionally symmetric, and why it is more suitable for exploratory portfolio analysis across a wide range of groups (region, sector, etc.).

For: performance analysts

Takeaways:

  • Develop a better appreciation of the interaction effect and related shortcomings
  • Develop new ways to quantify the level of asset allocation and selection within a portfolio analysis
  • Learn new ways to introduce and present an attribution analysis, that’s focused on the decomposition of active share
  • Gain a new method to explore the returns differences of two portfolios, or two benchmarks
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