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Lecture 6 Notes Too

Lecture 6

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11 views2 pages

Lecture 6 Notes Too

Lecture 6

Uploaded by

ali.alashkar2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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LUBS3655 Professional Portfolio Management

Lecture 6:
Performance and Attribution Analysis

• Monitoring the performance of your investment


• Collecting information about what drives the performance over the trading
period. Although your investment horizon is longer term, you are required to
give explanation about what has happen to your portfolio.
• Spotting any outliers and calling for action
• Such action may not be in line with your original strategy but it is necessary
for risk control.
• Some observations may lead you to question your original strategy and call
for change of direction. (Take this action very carefully).
• Spotting new opportunities
• Particularly important if you are pursuing short term active strategies such as
news trading.
• Rebalance your portfolio (optional)
• If you backtest your strategy using for example weekly updating frequency,
you need to also update your portfolio once a week.
• To rebalance your portfolio, you run the screen again using the same criteria
on a day that is 1 week after the day you initially implemented the strategy or
your previous rebalancing.
• Find out what security to remove from your portfolio, and what security to
add to your portfolio.
• At the end of the trading period (18 March 2022)
• You do not need to close your positions. Let your portfolio running as it is.
• However, regarding your report, your performance analysis will be based on
the performance of your portfolio over the period starting from the day that
you did your first trade and ending on 18 March 2022.
• Internal Use
• An important part of the investment process
• Performance measurement
• Reflection on the chosen strategy
• External Use
• Accountability
• Promotion
• Justification for the fee

Holding dicscussion
You may cover some of these aspects in your discussion:
1. Does the holding distribution (across country / sector) reflect your investment
strategy?
2. Can you explain the rationale of your over- or under- weighting certain sector and/or
region?
3. Can you back up your discussion with some industry and country analyses?
Fundamentals discussion
• Do the fundamentals reflect your original investment philosophy and strategy?
• Which fundamental measures are of your most concern? (e.g., P/E, Dividend yield ,
Cash flow?)
• Can you explain the difference in the fundamentals between your portfolio and the
benchmark?

Performance discussion
• You may cover some of these aspects in your discussion.
1. What is your overall return and risk in comparison to the selected benchmark (you
can use the active return figures and the risk adjusted measures in the Statistical
Summary tab)?
2. Comment on the overall return over the whole trading period; how is it related to
your investment strategy?
3. Is there any explanation for the difference e.g.
1. Does it suggest that your strategy is creating value?
2. Any key factors or large market movements that you consider to be
important? Are they fundamental (i.e. expected to persist) or temporary?
These questions can facilitate your assessment about how your portfolio
performance will evolve.

Attribution analysis
• In your team you may cover
• Which aspect of your investment decisions create or destroy value?
• Allocations – among sectors or countries
• Selections – within sectors or countries
• Currency – an indirect consequence of your country
• Do these findings consistent with your investment strategy? Link your
discussion with your holding analysis. If not,
• Are these effects temporary or expected to persist to the future.

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