Micro Performance Attribution

CFA Level III
#1

Can someone explain intuitive way to remember formulae for Micro Performance Attribution? I always get it incorrect. (1) Pure Sector Allocation. (2) Allocation/Selection Interaction (3) Within Sector Allocation.

#2

I’m not sure if this is very intuitive… but if you try to understand what each portion is trying to measure, i think you can almost recall what should be used without even really committing it to memory. pure sector: ability to overweight/underweight - outperforming/underperforming sectors - so find out how much the manager’s weight is different from the benchmark and how that sector performed relative to the performance of the whole benchmark. Wp-Wb(Rbj-Rb) within sector: stockpicking so need to keep sector weighting differences out of it, so use the benchmark weight. then find out how the managers stocks in that sector did relative to the benchmark’s stocks. Wb(Rpj-Rbj) allocation/selection interaction: take into account both the manager’s weightings and stock picking: (Wpj-Wbj)(Rpj-Rbj)

#3

^^ whole-heartedly agree.

#4

that’s exactly how i remember it…

#5

Feel like taking a crack at Global Performance Attribution? I’m just hammering it into my head as best i can.

#6

i’m not at the happy place with global performance attribution yet… if someone has something, I would love to hear it.

#7

cfasf1 Wrote: ------------------------------------------------------- > i’m not at the happy place with global performance > attribution yet… if someone has something, I > would love to hear it. Standard micro-attribution: 1) Pure Sector Allocation. (2) Allocation/Selection Interaction (3) Within Sector Allocation. Global performance attribution: A) currency (return in domestic minus return in local currencies) B) market -> same as pure sector allocation (1) C) security selection -> sum of allocation/selection interaction and within sector allocation (2)+(3)

#8

thanks maratikus. i’ve got to make this stick to my thick skull.

#9

maratikus Wrote: ------------------------------------------------------- > Standard micro-attribution: > 1) Pure Sector Allocation. > (2) Allocation/Selection Interaction > (3) Within Sector Allocation. > > Global performance attribution: > A) currency (return in domestic minus return in > local currencies) > B) market -> same as pure sector allocation (1) > C) security selection -> sum of > allocation/selection interaction and within sector > allocation (2)+(3) People who can take difficult concepts and make them simple truly have a gift. You have that gift maratikus.

#10

Thanks guys. I am trying to grasp these.

#11

maratikus Wrote: > A) currency (return in domestic minus return in > local currencies) I have to clarify. Return here is relative (portfolio - benchmark). Formally, if j is currency: sum of weight_p_j*(portfolio return in domestic_j - portfolio return in foreign_j) - weight_b_j*(benchmark return in domestic_j - benchmark return in foreign_j)

#12

Also market allocation return for global is a little different than pure sector allocation because the global benchmark is already accounted for in domestic terms. Same idea though.