Friday, February 02, 2007

FactSet: Add risk-based performance attribution for more meaningful analysis

Traditional weight-based performance attribution can be deceiving, said FactSet's Chris Ellis in his January 30 presentation on "Effectively Connecting Portfolio Risk and Excess Return" to the Boston Security Analysts Society. Ellis is FactSet's director of portfolio analytics and a senior vice president.

Ellis started with the assumption that the portfolio manager's goal is to outperform the benchmark on a risk-adjusted basis. Traditional performance attribution doesn't analyze whether active risks contributed to active performance.

Ellis suggested adding factor reports to link active risks and active performance. That's the best way to figure out what's driving relative performance.

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