Performance Attribution, Benchmarks, and Capture

Portfolio performance concepts for choosing a benchmark, measuring results consistently, attributing active return, and comparing behavior in rising and falling markets.

Performance analysis asks three different questions: What return did the portfolio earn, what is the appropriate comparison, and which decisions explain the difference? Answering them requires consistent periods, return methods, currencies, fee treatment, and cash-flow assumptions.

Investment Performance begins with the portfolio’s economic result. Time-weighted return is commonly used to reduce the effect of external contributions and withdrawals when evaluating a manager, while money-weighted return reflects the size and timing of the investor’s cash flows.

A Benchmark Index supplies market context. The comparison is meaningful only when the benchmark reflects the strategy’s investable universe and when both returns use compatible total-return, currency, period, and fee conventions.

Attribution Analysis then decomposes active return into specified effects, such as allocation, security selection, interaction, currency, duration, or factors. The explanation depends on the attribution model; it is not a unique causal truth.

Capture Ratios

Up-Market Capture Ratio compares portfolio and benchmark returns only in periods when the benchmark rose. Down-Market Capture Ratio uses periods when the benchmark fell.

These ratios describe conditional historical behavior. They do not show why the behavior occurred or guarantee the same response in future markets.

Questions to Verify

  • Are portfolio and benchmark returns measured over identical dates and in the same currency?
  • Are both returns total returns rather than one total-return series and one price-only series?
  • Are the results gross or net of fees, and are they actual, modelled, or hypothetical?
  • How were external cash flows and partial periods handled?
  • Does the benchmark match the mandate, risk exposures, and investment constraints?
  • Does attribution reconcile to active return, including residual or interaction effects?
  • Were capture ratios calculated from monthly, quarterly, or annual observations?

Past performance and historical capture patterns do not predict future results. This section provides general financial education, not personalized investment advice.

In this section

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Attribution Analysis

Attribution analysis decomposes portfolio return or active return into allocation, selection, interaction, currency, factor, and other model-defined effects.

Benchmark Index

A benchmark index is a rules-based reference portfolio used to compare an investment strategy's return, risk, and implementation against a relevant market segment.

Down-Market Capture Ratio

Down-market capture ratio compares a portfolio's compound return with its benchmark return only during periods when the benchmark was negative.

Investment Performance

Investment performance measures an investment's return over a defined period and places it in context using cash flows, fees, risk, and an appropriate benchmark.

Up-Market Capture Ratio

Up-market capture ratio compares a portfolio's compound return with its benchmark return only during periods when the benchmark was positive.

Return Methods
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