Performance Attribution Analysis

Performance attribution analyzes a portfolio manager’s success (particularly regarding outperformance of the portfolio benchmark) in the context of the investment decision-making process. It is an acid test for portfolio managers and a valuable business management tool, highlighting strengths and weaknesses in the investment process and identifying continued evidence of skill. Performance attribution decomposes excess portfolio returns into three components: the asset allocation effect, security selection effect, and currency effect. The currency effect can be further decomposed into the forward premium effect and the currency management effect. Regardless of the algorithms used, the most important goal in a performance attribution analysis is to present the results in a form that is consistent with the decision-making process.This presentation comes from the Managing Currency Risks for Investment Portfolios and European Monetary Union: Changes and Opportunities conference held in Zurich, Switzerland, on ...