96%NORMAL PORTFOLIO RETURNCASH TIMING 1.17 0.00 1.17 0.08BETA TIMING...

5.96%

Normal Portfolio

Return

Cash timing

1.17

0.00

1.17

0.08

Beta timing

1.06

1.00

0.06

0.04

Total Market

Timing

X

Market size

–1.18

–0.91

–0.27

0.10

Financial leverage

0.05

0.06

–0.01

0.08

Earnings to price

0.09

0.03

0.06

‐0.06

Total Exposure

X

to Fundamental

Factors

Technology

35.0

32.0

3.0

0.01

Energy

25.0

29.0

4.0

0.05

Telecommunications

40.0

39.0

1.0

–0.26

to Economic

Sectors

Unexplained

Return

Component

Katherine reports to the trustees that Exhibit 1 shows that David has:

Successfully managed to outperform an unambiguous benchmark

Showed himself to be a successful fund manager with regard to market timing and exposure to

fundamental factors

In her report on David, Katherine suggests that it may be appropriate for the pension fund trustees to also

consider a macro attribution approach to evaluating his portfolio’s performance.

Katherine next looks at a European fixed‐income fund, which is managed by Jürgen Hamman who invests

in German corporate bonds. To better understand the performance of the portfolio, Katherine breaks

down its total return into the following components:

Interest rate effect

Sector/quality effect

Security selection effect

Trading activity effect

Interest rate management effect

Using this breakdown she reports back to the trustees on a number of components of Jürgen’s

performance. She feels that it will be necessary to explain to the trustees how each effect is measured.