To fully benefit from the insights that attribution models provide, you should be aware of and understand the limitations of those models. Especially for rebalancing decisions outside the regular rebalancing scheme, applicable to most COVID-19 triggered rebalancing activities, one limitation is particularly relevant.

COVID-19 forces many asset owners and asset managers to rebalance (parts of) their investment portfolio. These re-allocation decisions can have a major impact on fund performance. Measuring the impact of each decision within this rebalancing process helps you to understand and explain to your stakeholders where and how much value you have added. Our performance attribution system PEARL, offers unique decision based attribution functionality that helps you to detangle the different decisions and measure the impact of each.

To fully benefit from the insights that attribution models provide, you should be aware of and understand the limitations of those models. Especially for rebalancing decisions outside the regular rebalancing scheme, applicable to most COVID-19 triggered rebalancing activities, one limitation is particularly relevant: for those decisions you need to combine attribution results of multiple periods into a single analysis. However combining those effects can lead to unexpected attribution results. In the attached article on Multi-Period Performance Attribution we explain this in great detail and introduce the drift-allocation and drift-interaction effect as extensions to the Brinson model.

Want to know more on how your investments performance evaluation can be supported by our experts? Please contact Bas Leerink and/or Maurits van Joolingen.

See original blog: https://www.ortecfinance.com/en/about-us/news-and-events/understand-the-limitations-of-performance-attribution-to-capture-the-effect-of-rebalancing-due-to-covid-19