Performance Perspectives Blog

Fixed income attribution … trends & best practices

by | May 3, 2011

A client recently asked me what the trend is regarding “building” fixed income attribution systems and what some of the “best practices” are for these systems.

First, as to the trend, I would say it is to buy not build these systems, as there are many vendors who offer very good ons. That being said, we still see many firms who want to build them. We have and continue to work with firms who wish to do this.

And as for “best practices,” I will offer two:

  1. Strive to have the system match the investment process; this is a “universal rule” when it comes to attribution.
  2. Employ two models: one for the managers (internal use) and one for the clients (external).

You may be curious about the second, so I will touch on this briefly. Many portfolio managers want their attribution sliced up into many effects, so they can fully and completely analyze what took place; however, such details can be overwhelming for the firm’s clients, thus we recommend a broader, more intuitive model for them.

There continues to be discussion around the possibility of software vendors including one or two commonly accepted fixed income attribution models. I had posed this question several years ago, in discussions with vendors who participated in one of our surveys, asking if they expected to see a “Brinson-type” fixed income model; not that the model would be structured like the Brinson equity models, but rather models that would be found in every vendor’s list. While there seemed to be little support for this, I expect this to occur at some point. As always, your thoughts are invited.