About the author

Acknowledgements

Preface

1 An introduction to attribution

1.1 Securities, portfolios and risk

1.2 Types of risk

1.3 Return and attribution

1.4 Strategy tagging

1.5 Types of attribution

1.6 Book structure

PART 1 Equity attribution

2 The basics of performance measurement

2.1 Introduction

2.2 Defining return

2.3 Compounded returns

2.4 Time-weighted and money-weighted returns

2.5 Portfolio returns

2.6 Transactions and cash flow

2.7 Sector returns

2.8 Calculating portfolio returns over successive intervals

2.9 Futures cash offsets

2.10 Edge cases

2.11 External returns

2.12 Benchmarks

2.13 Active return

2.14 Stochastic attribution

2.15 Liability-driven investment (LDI)

3 Equity attribution

3.1 Introduction

3.2 Brinson attribution

3.3 Single level Brinson attribution

3.4 Multiple-level asset allocation

3.5 Off-benchmark securities

3.6 Successive portfolio attribution

3.7 Security-level attribution

4 Currency attribution

4.1 Introduction

4.2 Currency attribution returns

4.3 Performance and attribution on unhedged portfolios

4.4 Attribution on an unhedged portfolio

4.5 Portfolio hedging

4.6 Currency forwards

4.7 Hedging and risk

4.8 Naïve attribution on a hedged portfolio

4.9 Measuring hedge returns

4.10 Brinson attribution on a hedged portfolio

4.11 Problems with the Brinson approach when hedging is active

4.12 Calculating base and return premiums

4.13 The Karnosky-Singer attribution model

4.14 Running Karnosky-Singer attribution on an unhedged portfolio

5 Smoothing algorithms

5.1 Why returns do not combine neatly over time

5.2 The importance of internally consistent return contributions

5.3 Path-independence

5.4 Carino smoothing

5.5 Geometric smoothing

5.6 Foreign exchange return and smoothing

5.7 Summary

PART 2 Fixed income attribution

6 An overview of fixed income risks

6.1 Introduction

6.2 What is a bond?

6.3 Pricing conventions

6.4 Maturity

6.5 Coupons

6.6 Discounted cash flows and net present value

6.7 Pricing a bond from its discounted cash flows

6.8 Bond yield and carry return

6.9 Prices and yields

6.10 Return of a bond

6.11 Credit effects

6.12 The three Cs

7 Yield curves in attribution

7.1 Introduction

7.2 Why interest rates vary by term

7.3 Interpolation

7.4 Par curves and zero curves

7.5 Credit spreads

8 Pricing, risk and the attribution equation

8.1 Introduction

8.2 Pricing securities from first principles

8.3 Calculating return using the perturbational equation

8.4 Residuals

8.5 Stand-alone portfolios

PART 3 Sources of fixed income return

9 Carry return

9.1 Introduction

9.2 Carry-based investment strategies

9.3 Types of yield

9.4 Calculating carry return

9.5 Pros and cons of YTM

9.6 Decomposing carry

9.7 Which yield to use?

9.8 Decomposing carry return

9.9 Yield for non-bond securities

9.10 Using yield to maturity in attribution reports

10 Sovereign curve attribution

10.1 Introduction

10.2 Yield curve models

10.3 Parallel shift and modified duration, and why they matter

10.4 Measuring twist

10.5 Taxonomy of curve shifts

10.6 Sources of yield curve data<