Equity Performance Attribution

With the rise of passive investing, extensions to long-short and an increased use of derivatives, equity performance attribution is increasingly as complex as fixed income. Portfolio managers need more accuracy than ever before and a buy and hold approach is unlikely to be enough.

We have taken our extensive knowledge of fixed income attribution and applied it to our equity model to add greater value by enhancing the quality of holdings and transactions, investing outside the benchmark and regrouping the results.

Core areas

Transaction Based

Derivatives

Classification

Currency

Transaction Based

Accurate attribution needs to use a transaction based approach if it is not to generate large residuals.

It needs to be flexible to handle spin-offs, splits, dividends and derivatives

Our Solution

We build a bespoke equity performance model to match the accounting system. This can be used across all asset classes.

As long as the accounting system handles corporate actions and derivatives correctly then so will we.

Derivatives

Derivatives are no longer restricted to hedge funds and fixed income. Increasingly they are mainstream equity instruments.

Models need to correctly capture the exposures they bring: market, currency, cash and any leverage.

Our Solution

Fixed income portfolios use derivatives extensively, from futures to swaps and repos.

It has therefore been natural to build their handling into the core of the system.

We treat them as any other instrument including them within classification structures and splitting second legs to be grouped elsewhere.

Classification

Handling classification structures needs a flexible approach.

It needs to be able to combine different types of descriptor to form multi-level structures. It also needs to be able to misclassify securities in a transparent way if needed.

Our Solution

We have a three-stage approach:

Normalise the input descriptors e.g. to handle FTSE and MSCI using the same structure
Group items, allowing different sectors to be viewed with different detail
Drag and drop to create the structure.

Currency

Many securities have an underlying currency exposure. Their local return captures currency effects as well.

In cases like ADRs, GDRs and some derivatives, it is often desirable to break out and correctly attribute these currency effects.

Our Solution

We enable any security to be defined with a currency basket. This can be fixed or vary by date.

We handle to break out of the currency and cash effects and the correction of the local return, removing the underlying currency effects to show them separately.

An Equity Performance Attribution Solution Designed to Solve Common Problems

Problem

Issues

Our Solution

Problem

Brinson models were built to explain asset class decisions

They are not good at attributing at security level

Issues

Traditional models take a top-down approach
Selection is an overall sector figure
It does not work for individual securities

Our Solution

We have modified the model
Security selection makes sense at security level
But still rolls up to the correct Brinson sector selection

Problem

Drive towards passive investments continues

The desire to attribute accurately and explain investment influences clearly is a high priority.

Clients are demanding greater insight and understanding.

Issues

Even a small difference to ABOR can be a problem
This increases the conversations around data and quality
A greater desire for easy access to long time periods for performance, attribution and exposures

Our Solution

Our bespoke performance models ensure no residual
Data checks advise how to fix problems
All calculations are daily but available for any period or periodicity

Problem

Consistency between asset classes

Equity, multi-asset and, particularly, fixed income are often seen as different, requiring separate attribution systems.

Issues

A great deal of overlap results in inefficiencies
Possible sources of errors are multiplied
Overly expensive in system and resources
Combined reporting is difficult
Users need to learn multiple systems

Our Solution

Common core system
File loads include all data
Shared performance, reporting and back office
All funds together facilitates a common investment approach

Fixed Income Portfolio Management Software

We have rethought Fixed Income Attribution with an innovative approach to technology and the model driving efficiency and accuracy.

Multi-Asset Performance Software

Multi-asset has been left to self-serve for too long. As clients require more diversification there is an increase in the desire to properly allocate decisions, we have developed a better way.

Get in touch

Fill in your contact details along with your enquiry and one of our team will be in touch with you as soon as possible.

info@cloudattribution.com

Equity Performance Attribution Software

Core areas

Transaction Based

Our Solution

Derivatives

Our Solution

Classification

Our Solution

Currency

Our Solution

An Equity Performance Attribution Solution Designed to Solve Common Problems

Brinson models were built to explain asset class decisions

Drive towards passive investments continues

Consistency between asset classes

Asset Class

Fixed Income Portfolio Management Software

Multi-Asset Performance Software

Get in touch