The following table describes each Brinson-Fachler effect associated with Eagle's Geometric Attribution Method. These segment-level formulas for the effects differ from those used when you perform Brinson-Fachler analysis using Menchero or Carino arithmetic algorithms or the Carino geometric algorithm.
The Geometric formulas that follow can be derived from the Arithmetic formulas by replacing the Arithmetic excess return, which is (Fund return – Benchmark Return), with the Geometric excess return, which is ((1 + Fund Return)/(1+ Benchmark Return) -1).
Return | Formula | Description |
|---|---|---|
Allocation | (Fund Segment Base Weight − Benchmark Segment Base Weight) * ((1+ Benchmark Segment Local Return) / (1 + Benchmark Total Local Return)-1) | Measures the effect of overweighting or underweighting the sectors. |
Selection | (Fund Segment Base Weight * | Measures the impact of choosing securities within an asset segment that provide different returns from the benchmark. It evaluates the manager's skill in choosing better performing securities than those in the benchmark. |
Local Total Attributed | ((1 + Allocation) * (1 + Selection) -1) | The value added by active portfolio management, excluding currency effects. That is, the excess local return. This is identical to the excess base return for a single currency analysis. It is the compounding of the allocation and selection effects. |
Currency Allocation | (Fund Segment Base Weight − Benchmark Segment Base Weight) * (Benchmark Segment Currency Return − Benchmark Total Currency Return) | Calculates the impact of Currency Allocation investment strategies related to currency exposure for each sector within a performance model. |
Currency Selection | Benchmark Segment Base Weight * (Fund Segment Currency Return − Benchmark Segment Currency Return) | Calculates the impact of Currency Selection investment strategies related to currency exposure for each sector within a performance model. |
Currency | Currency Allocation + Currency Selection | Measures the impact of overweighting or underweighting currency in the portfolio relative to the benchmark. |
Total Attributed | ((1 + Allocation) * (1 + Selection) * (1 + Currency) -1) | The value added by active portfolio management. That is, the excess base return. It is the compounding of the allocation, selection, and currency effects. For single currency analysis this is identical to Local Total Attributed. For multi-currency analysis this is calculated for total level only. |
When compounding single-period effects to calculate multi-period results, the Geometric Attribution Method applies a small adjustment to each sector so that the sector effects compound to match the effect at the total level. For more information, see Brinson-Fachler Geometric Attribution Method Adjustment.