Performance Attribution (PART) Module

Transcription

1 Performance Attribution (PART) Module in BondEdge Can you justify your performance vs. your benchmark s? Yield curve exposure. Sector allocations. Spread risk. Foreign exchange fluctuations. Security selection. With so many market risks and other factors at work, measuring and understanding the sources of fixed income performance can be a challenge. Whether you re interested in monthly, quarterly, annual, or historical attribution or attribution between any two selected points, the BondEdge Performance Attribution model clearly outlines whether or not your bets paid off, and explains why in universally understood categories of fixed income market risks and returns. BondEdge offers both a proprietary duration or factor-based ( bottom up ) approach, as well as as a returns- or sector-based ( top down ) analysis. With a series of reports and graphs, you ll be able to quickly see the impact of investment decisions and their affects on returns. Identify Risks Summarize the exposure of the portfolio and index to both parallel and non-parallel interest rate shifts, as well as sector/quality spreads over the selected time period with the Duration History report. Key Features, Portfolio vs. Benchmark Explain your performance record to current clients and new business prospects Pinpoint reasons for return variance relative to your benchmark Identify how key sources of risk and return affected your investment strategy Understand performance and more effectively manage risk Calculate sources of return with precision, using OAS-based analysis Import actual trade price information for greater accuracy in your performance analysis Choose the methodology approach which most closely matches your investment style (factor/ duration-based or returns/sector-based) Option adjusted measures such as effective duration, convexity, plus corporate and mortgage spreads for the portfolio and index. Analyze Returns Highlight changes in key market risk factors with the portfolio s and benchmark s exposure to those factors with a series of total return-based reports. Categorize the sources of return for the selected portfolio and/or index over a given period of time with the Total Return summary. For portfolios with exposure to multiple currencies, illustrate the contribution to return differences based on changes in term structure and currency exchange rates for each market with the Country Detail report. Interactive Data Fixed Income Analytics

2 For a different perspective on portfolio and benchmark returns, measure returns based on sector/quality allocation decisions with the Sector Returns report. Graph contribution to return differences to analyze highest returns by country. Even more in-depth analysis on total return history is available for each of the following effects: Non-parallel view detailed analysis of the effect of changes in yield curve slope Sector/Quality highlight the effect of changes in corporate and mortgage spreads, plus sector allocation differences versus the index Selection capture issue-specific effects based on observed OAS changes Transaction compute the cost of transactions via an automated search of the BondEdge Trade Ticket* Strategic measure the success of your trade strategy versus a passive (no trade) approach Quickly highlight top performing sectors vs. the benchmark. Drill down for detailed bond-by-bond analysis, subtotaled by either Primary and Secondary Sector or by Currency of specific security performance with the Selection Effect report. *Trade Ticket available separately

3 Sector/Returns-based Attribution In addition to our traditional, proprietary durations- or factor-based approach, this top down attribution approach offers the flexibility to calculate performance attribution according to user-defined hierarchies of various return categories. The Returns-based attribution is appealing for a number of reasons it is relatively easy to explain and offers flexibility to categorize returns in a way that meets each portfolio manager s style or decisionmaking criteria. It is also commonly used by equity managers and therefore may be the best choice for reporting to clients with balanced accounts. Returns- or sector-based performance attribution explains the total return difference between a portfolio and benchmark in terms of the relative weightings among categories, and the asset selection within a category. Returns for the benchmark are the driving force in the analysis, as the portfolio s return in each category is deemed to be favorable or unfavorable in comparison with the benchmark s result for that category. The overall return difference is attributed to Weighting and Selection effects, based on being over- or underweighted in categories that did better or worse than the overall index return, and to selecting bonds that outperformed or underperformed the index within a particular category. To best reflect the managers decision-making process, BondEdge allows the portfolio manager to choose the categories used in the analysis, such as sectors or industries, duration ranges, quality ratings, currencies, etc. For example, if investment decisions are driven primarily by sector allocations, then by duration within each sector, the attribution report could reflect that hierarchy of decisions. As many as three nested levels of categorization may be included. The ability to extend the analysis to a second and third level that has been implemented in BondEdge allows managers to reflect the different criteria used in constructing a portfolio. Construct a hierachy (using up to three levels of return categories) to most effectively mirror your investment strategy. In this example, a high yield portfolio manager may choose to view return results by Quality first, Sector Detail within each quality bucket next. Quickly highlight how each sector and sub-sector performed in terms of the difference to contribution to overall return between the portfolio and the benchmark.

4 For a municipal portfolio manager, attribution analyzed by State, then Sector, then Quality may be more appropriate. For methodology insight, please request a copy of our white paper, The Performance Attribution Methodology in BondEdge, available at For more information about the Performance Attribution (PART) module, log onto our Web demo at To subscribe, please contact your Interactive Data Fixed Income Analytics Representative.

5 Methodology REPORTED ACTUAL RETURN TOTAL RETURN Residual INCOME RETURN PAYDOWN EFFECT PRICE RETURN CURRENCY RETURNS Term Structure Effects Sector/Quality Spread Effect Selection Effect Active Expected Amortization & Roll Effect Parallel Effect Non-Parallel Effect Effective Duration Convexity

6 About Interactive Data Corporation Interactive Data Corporation is a trusted leader in financial information. Thousands of financial institutions and active traders, as well as hundreds of software and service providers, subscribe to our fixed income evaluations, reference data, real-time market data, trading infrastructure services, fixed income analytics, desktop solutions and web-based solutions. Interactive Data s offerings support clients around the world with mission-critical functions, including portfolio valuation, regulatory compliance, risk management, electronic trading and wealth management. Interactive Data is headquartered in Bedford, Massachusetts and has over 2,400 employees in offices worldwide. Interactive Data s Fixed Income Analytics business is a leading provider of fixed income portfolio analytics to the investment community with decades of expertise. Its client base includes more than 400 leading banks, investment managers, brokerage firms, insurance companies and pension funds throughout North America and Europe. This business is known for its flagship product, BondEdge, which allows customers to identify opportunities and analyze portfolio risk using robust modeling techniques. Interactive Data also provides direct access to sophisticated risk measures for a wide universe of fixed income securities via its analytical datafeed service. For more about Interactive Data and its businesses, please visit Amsterdam Bedford Boston Chicago Cologne Dubai Dublin Fort Lauderdale Frankfurt Geneva Glasgow Hayward Helsinki Hong Kong Houston Irvine Jersey, CI London Luxembourg Madrid Melbourne Milan Minneapolis New York Paris Rome Santa Monica Singapore Sydney Tokyo Zurich Interactive Data Fixed Income Analytics th Street, Suite 300 Santa Monica, CA USA Tel: Fax: fia.info@interactivedata.com 100 Church Street, 11th Floor New York, NY USA Tel: Fax: fia.info@interactivedata.com Fitzroy House, Epworth Street London EC2A 4DL UK Tel: +44 (0) Fax: +44 (0) fia.info@interactivedata.com Limitations This document is provided for informational purposes only. The information contained in this document is subject to change without notice and does not constitute any form of warranty, representation or undertaking. Nothing herein should in any way be deemed to alter the legal rights and obligations contained in agreements between Interactive Data Fixed Income Analytics and its clients relating to any products or services described herein. Nothing herein is intended to constitute legal, tax or other professional advice. Interactive Data makes no warranties whatsoever, either express or implied, as to merchantability, fitness for a particular purpose or any other matter. Without limiting the foregoing, Interactive Data makes no representation or warranty that any data or information supplied to or by it are complete or free from errors, omissions or defects. Interactive Data SM and the Interactive Data logo are either registered service marks or service marks of Interactive Data Corporation in the United States and other countries. BondEdge is either a registered trademark or a trademark of Interactive Data Corporation in the United States and other countries. Interactive Data Fixed Income Analytics is a division of Interactive Data Corporation Interactive Data Fixed Income Analytics 2008 (0401)