Mastering Attribution in Finance

13

Balanced attribution

13.1 Introduction

13.2 Calculating balanced attribution

13.1 INTRODUCTION

Consider a multi-currency portfolio with holdings in equity and fixed income investments from several different countries. The portfolio is managed as follows:

• First, an international asset allocation committee meets and decides the relative amounts to invest in different countries.
• For each country, a cash/equity/fixed income allocation decision is made.
• For the fixed income portions of the portfolio, the fund’s assets are invested in appropriate assets within each country and managed using fixed income strategies (carry, curve, credit).

Hopefully, value is being added at all three levels. However, assessing the value generated by each decision ...