Annualize Returns Option

Owned by Tom Fahey (Unlicensed)
Last updated: Oct 17, 2023 by Pamela Totas (Deactivated)
2 min read

The Annualize Returns option on the Options & Field Map Field dialog box allows you to report attribution results on an annualized basis. This dialog box is available when you configure the Global Attribution Group field. See the following figure.


The following options are available:

  • Do Not Annualize. The system performs cumulative attribution and does not annualize attribution results.

  • Cumulative Return Difference Annualized. The system annualizes the cumulative active return difference. Then, it uses the ratio of the annualized to cumulative active return difference to scale all of the attribution effects so that they are combined correctly to the annualized return difference.

  • Difference of Annualized Returns. The system annualizes both the portfolio return and benchmark return and derives the arithmetic difference of these annualized returns. Then, it uses the ratio of the arithmetic return difference to the cumulative return difference to scale all of the attribution effects so that they are combined correctly to the arithmetic return difference.

  • To Held Period, Cumulative Return Difference Annualized. The system annualizes the cumulative active return difference for the held period. It uses the ratio of the annualized cumulative active return difference to scale all of the attribution effects so that they are all combined correctly to the annualized return difference.

  • To Held Period, Difference of Annualized Returns. The system annualizes both the portfolio return and the benchmark return for the held period. It takes the arithmetic difference of these annualized returns. It uses the ratio of the arithmetic return difference to the cumulative return difference to scale all of the attribution effects so that they are combined correctly to the arithmetic return difference.

The following example illustrates how the system annualizes attribution results using the two available methods. In this example, you are performing equity attribution over a 15-month reporting period. The Cumulative Return column indicates that the portfolio has a cumulative return of 33.00, the benchmark has a cumulative return of 20.00, and the cumulative difference between the portfolio and benchmark cumulative return is 13.00. See the following figure.


When you select the Cumulative Return Difference Annualized option, the system annualizes the cumulative active return difference, using the standard annualization methods described in Performance Analysis and Reporting. The 15-month cumulative return difference is 13.00 (33.00 - 20.00 = 13.00). The system annualizes the difference of 13.00 and calculates an annualized return difference of 10.30.
When you select the Difference of Annualized Returns option, the system first annualizes both the portfolio return and benchmark return, using the standard annualization methods described in the Performance Analysis and Reporting Guide. It determines that the Annualized Return for the portfolio is 25.71 and the Annualized Return for the benchmark is 15.75. Then, it takes the arithmetic difference of these annualized returns to calculate an annualized return difference of 9.96 (25.71 - 15.75 = 9.96).