Macro Attribution Performance Measure Calculcations / Formulas

CFA Level III
#1

Any tricks for the Macro Attribution Performance calculation formulas … I have not seen any problems but fear the god that it will show up as a big item on the AM and I will stare at the blank page wishing I memorized them… These would be the incremental return to asset category, return to benchmark level, and investment manager level

#2

bump

#3

These are just sums of the weighted averages of the return differences for the different categories. There aren’t really any tricks though. You have to know what is being evaluated at each level and where to pull the numbers from. The best advice I have is to study the table in the OKelly Topic Test and look at where the % returns are coming from in the solutions.

#4

There are 3 calcs you need to know.

  1. Asset Categories - remember as difference between benchmark total return and risk free

  2. Benchmarks - remember as difference between benchmark manager return and benchmark total return

  3. Investment Managers - remember as difference between investment manager return and benchmark manager return

Weight them all accordingly. 1 will be weighted for asset class, 2 and 3 will be weighted for manager AND asset class

#5

You can look at 2015 AM exam Q5 to know how a question was thrown on this item.

#6

Use the Mnemonic device: NRABIA - The NRA Bowls In Autumn

Net Contributions Risk Free Asset Allocation Benchmarks Investment Manager’s Allocation

Keep in mind its always top down in that exact order, and that each level should be interpreted and computed as an increment.

This is an oversimplified illustration, but just to get the point across:

After Net Contributions, Risk free was 3%, Asset Returns were 4%, and over/under weighting in Bench’s resulted in 4.5%

We are trying to attribute where this return is derived from:

  • Risk Free accounted for 3% - Broad Asset returns were 4%, but incrementally this include risk free, so we attribute an increment of 1% - Over/Under weighting Bench’s resulted in 4.5%, but 4% is explained by Risk free and broad asset selection, so incrementally 0.5% can be attributed to over/under weighting in bench

and so forth and so forth.

The last bucket: Allocations is a plug. Usually you can see what the total portfolio was at the beginning and at the end, you attribute to each of the other sections, and find the plug.

Reminder that in Micro Attribution: Allocation can be a plug or be asked to derive via formula.

Hope this helps and good luck!

#7

Thanks, and you’re spot on. The key is if they give you ABSOLUTE numbers for each attribution, you have to back out to get the INCREMENTAL.

#8

Thanks everyone this is great… I have not done 2015 AM yet good to know to study this before I do that one LOL that will be my first timed AM tomorrow, done 3 question by question to learn the concepts better.