Performance Attribution for Portfolios with Composite Investments

Abstract

In existing performance attribution, composite investments are resolved into simple assets, and the performance attribution provides results only for the resolved, net investment in the simple assets. As a result, the individual investment in the composite investment in isolation is lost, and it is impossible to determine if the investment in the composite investment in isolation helped or hurt performance. Approaches are described to determine attribution in a manner in which the attribution hierarchy is altered so that, after reporting on the performance of the full portfolio, a further level of attribution reports on a set of sub-portfolios. The first sub-portfolio represents the original investments in simple assets only while the other sub-portfolios represent investments in each composite investment. This composite-first performance attribution determines the individual contribution to performance of each composite investment, resulting in more detailed, practical, and intuitive results.

We claim: 
     
         1 . A computer-implemented method for computing and reporting the performance attribution of a set of portfolio holdings over time comprising:
 electronically receiving and storing by a programmed computer a set of dates defining an attribution time horizon to be analyzed;   for each date, electronically receiving and storing by the programmed computer a set of possible investments where at least one of the investments on at least one of the dates represents a composite investment in two or more underlying simple assets;   for each composite investment opportunity, electronically receiving and storing by the programmed computer a set of underlying weights in simple assets that define each composite investment composition;   for each date, electronically receiving and storing by the programmed computer a historical portfolio of holdings having investment weights in the set of possible investments where at least one of the investments on at least one of the dates represents an investment in a composite investment;   for each date, electronically receiving and storing by the programmed computer a set of supporting data required to compute a performance attribution on the historical portfolios;   for each date, electronically calculating a reallocation of the historical portfolios into sub-portfolios, that includes a sub-portfolio representing the original investments in simple assets only and a sub-portfolio representing each composite investment present in the historical portfolio wherein the sum of the original investment weights equals the sum of the investment weights across the sub-portfolios;   computing a performance attribution analysis for each sub-portfolio; and   electronically outputting the performance attribution results using an output device.   
     
     
         2 . The method of  claim 1  in which the investment weights in the sub-portfolio representing the original investments in simple assets only have been altered by a function of a sum of the original investment weights in each composite investment. 
     
     
         3 . The method of  claim 2  in which the style of performance attribution is an asset grouping attribution and the set of supporting data includes a benchmark, a classification of the assets, and the asset returns. 
     
     
         4 . The method of  claim 3  further comprising:
 ranking the contributions computed for each sub-portfolio. 
 
     
     
         5 . The method of  claim 2  in which the style of performance attribution is a factor based attribution and the set of supporting data includes a set of factors, factor exposures, factor returns, and specific or asset returns. 
     
     
         6 . The method of  claim 5  further comprising:
 ranking the contributions computed for each sub-portfolio. 
 
     
     
         7 . The method of  claim 2  in which at least one of the composite investments is a composite of a composite. 
     
     
         8 . A computer-implemented system for computing and reporting the performance attribution of a set of portfolio holdings over time comprising:
 a memory for storing data for a set of dates defining a time horizon for an attribution to be performed;   a processor executing software operating to:
 to retrieve data defining a set of possible investments at each date where at least one of the investments on at least one of the dates represents a composite investment in two or more underlying simple assets; 
 to retrieve data for each composite investment opportunity a set of underlying weights in simple assets that define each composite investment composition; 
 to retrieve data for historical portfolios of holdings having investment weights in the set of investible assets at each date; 
 to retrieve a set of supporting data required to compute a style of performance attribution on the historical portfolios; 
 to compute a reallocation of the historical portfolios into sub-portfolios comprising a sub-portfolio of investments representing the original investment in simple assets and a sub-portfolio representing each composite investment present in the historical portfolio wherein the sum of the original investment weights equals the sum of the investment weights across the sub-portfolios; 
 to compute a performance attribution analysis for each sub-portfolio; and 
   an output device electronically outputting the performance attribution results.   
     
     
         9 . The system of  claim 8  in which the investment weights in the sub-portfolio representing the original investments in simple assets only have been altered by a function of a sum of the original investment weights in each composite investment. 
     
     
         10 . The system of  claim 9  in which the style of performance attribution is an asset grouping attribution and the set of supporting data includes a benchmark, a classification of the assets, and the asset returns. 
     
     
         11 . The system of  claim 10  in which the contributions computed for the sub-portfolios are ranked by the programmed computer. 
     
     
         12 . The system of  claim 9  in which the style of performance attribution is a factor based attribution and the set of supporting data includes a set of factors, factor exposures, factor returns, and specific or asset returns. 
     
     
         13 . The system of  claim 12  in which the contributions computed for the sub-portfolios are ranked by the programmed computer. 
     
     
         14 . The method of  claim 9  in which at least one of the composite investments is a composite of a composite. 
     
     
         15 . A computer-implemented method for determining a performance attribution of a portfolio comprising investments in simple assets including individual stocks and at least one composite investment including an exchange traded fund (ETF), the method comprising:
 splitting the portfolio into a first sub-portfolio for the investments in the simple assets and an additional sub-portfolio for each composite investment including a second sub-portfolio for the ETF wherein the sum of the original investments equals the sum of the investments across the sub-portfolios;   determining an attribution contribution for the first sub-portfolio; and   determining an attribution contribution for each additional composite investment including an attribution contribution for the second sub-portfolio.   
     
     
         16 . The method of  claim 15  further comprising:
 displaying the attribution contribution for the first sub-portfolio and the attribution contribution for the second sub-portfolio employing an output device. 
 
     
     
         17 . The method of  claim 15  further comprising:
 electronically receiving and storing by a programmed computer a set of dates defining an attribution time horizon to be analyzed; 
 for each date, electronically receiving and storing by the programmed computer a set of investments comprising the portfolio; 
 for each composite investment, electronically receiving and storing by the programmed computer a set of underlying weights in simple assets that define each composite investment; and 
 for each date, electronically receiving and storing by the programmed computer a set of supporting data required to compute the performance attribution contributions. 
 
     
     
         18 . The method of  claim 15  further comprising:
 utilizing a percentage allocation to the first sub-portfolio to determine an active weight of each simple asset of the first sub-portfolio; and 
 utilizing a percentage allocation to the second sub-portfolio to determine an active weight of each simple asset of the second sub-portfolio.