Portfolio Performance - Fixed-Income Attribution - interest rate management

Hi everyone,

In Schewser concept checkers, Kappa Asset Management states its investment strategy is to immunize against interest rate exposure and to yield positive contribution through bond selection.

To verify Kappa Asset Management’s claims, Schewser states that the firm has derived +36 basis points from active interest rate management (ie. Interest Rate Management Effect). Thus, the statement to immunize against interest rate exposure is incorrect.

Seems like what they are suggesting that if Interest Rate Management is close to 0%, it means it has immunized against interest rate exposure.

Why shouldn’t the “Interest Rate Management” be compared against “Interest Rate Effect” and check whether both effects cancel other, in order to come to the conclusion that the portfolio is immunize against interest rate exposure?

Thank you.

Hey, I managed to find the answer on this forum (https://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91340963)

Great answer from cpk “if they were immunizing against interest rate exposure - they would have no “interest rate management effect” - since immunizing your portfolio would mean being lock step in change with the interest rate environment. They have a positive contribution of 0.36 (0.23 - 0.03 + 0.16) due to interest rate management effect.”


i must’ve been lot younger to have said that