Performance Attribution

Performance attribution is a process used to evaluate the sources of a portfolio’s returns relative to a benchmark. It breaks down the portfolio’s performance into various factors, such as asset allocation, stock selection, and market timing, to understand which decisions contributed to gains or losses. Performance attribution helps fund managers and investors identify strengths and weaknesses in their investment strategies and make informed adjustments.

Example

A mutual fund manager uses performance attribution to analyze why their fund outperformed the S&P 500, discovering that stock selection in the technology sector contributed the most to the fund’s gains.