What is fixed income performance attribution?

What is fixed income performance attribution?

Fixed-income attribution is the process of measuring returns generated by various sources of risk in a fixed income portfolio, particularly when multiple sources of return are active at the same time. The overall performance will then be the sum of the performance contributions from each source of risk.

What is fixed income benchmark?

Fit: A benchmark index should represent a defined set of fixed income asset types, maturity ranges, industry sectors, credit ratings, allocation goals, or risk tolerances to measure the performance of a variety of investments.

What is key rate duration?

Key rate duration measures how the value of a debt security or a debt instrument portfolio, generally bonds, changes at a specific maturity point along the entirety of the yield curve.

What is the Brinson model?

The Brinson model attributes the excess return almost entirely to security selection. In contrast, the risk-based performance attribution indicates excess return is attributable to both systematic risk exposures and security-specific decisions.

What is factor attribution?

Factor attribution aims to explain a strategy’s. performance for a given period in the context of. the fundamental factor model.4 A portfolio’s realized. return is decomposed into the contributions of the. individual model factors as measured by factor.

How do you do attribution analysis?

Perform a Portfolio Return Attribution Analysis

1. Step 1: Create a Weighted Benchmark That Includes All Asset Classes.
2. Step 2: Calculate Returns for Each Asset Class and for the Overall Portfolio.
3. Step 3: Compare Your Returns for Each Asset Class to the Benchmark Returns.

Do you need to understand fixed income attribution?

Any discussion of fixed-income attribution therefore requires an appreciation of how changes in the curve are described, and their effect on the performance of a portfolio.

How is yield curve attribution used in fixed income?

Yield curve attribution. A more widely used approach to fixed-income attribution is to decompose the returns of individual securities by source of risk, and then to aggregate these risk-specific returns over an entire portfolio.

Why are fixed income instruments more complex than equity instruments?

This is because the drivers of total return for fixed income instruments are more complex than in the equity space. Fixed income attribution has to go further than identifying how much asset values change over time; it should try to identify the reasons for these changes.

Why is performance attribution important in the investment process?

Performance attribution is an integral part of the investment process that helps to close the feedback loop by explaining the drivers of benchmark relative over- or under-performance. Drilling down a bit: Why is performance attribution important? This is not a trick question.