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.