First, as to the trend, I would say it is to buy not build these systems, as there are many vendors who offer very good ons. That being said, we still see many firms who want to build them. We have and continue to work with firms who wish to do this.
And as for "best practices," I will offer two:
- Strive to have the system match the investment process; this is a "universal rule" when it comes to attribution.
- Employ two models: one for the managers (internal use) and one for the clients (external).
There continues to be discussion around the possibility of software vendors including one or two commonly accepted fixed income attribution models. I had posed this question several years ago, in discussions with vendors who participated in one of our surveys, asking if they expected to see a "Brinson-type" fixed income model; not that the model would be structured like the Brinson equity models, but rather models that would be found in every vendor's list. While there seemed to be little support for this, I expect this to occur at some point. As always, your thoughts are invited.
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David,
ReplyDeleteThe fans of the Olympics might want to know who is the best athlete. But it would be an abrogation of responsibility if the Olympic Committee posted the times of all performances in ascending order. Not only should the Marathon winner’s time not be seen as inferior to that of the 100 meter dash winner, but the javelin thrower’s time is completely irrelevant.
You say that “such details can be overwhelming for the firm's clients, thus we recommend a broader, more intuitive model for them.” I hope that that does not mean that you think it is OK to give clients inappropriate evaluations of decisions, such as Brinson Sector allocation/Issue selection, even when that is not how they run their portfolios, just because it is simpler to compare them all with the same measure. I would not want to mislead clients with evaluations of purportedly controlled decisions when they were not at all the decisions being controlled. In such matters, I strongly believe that clients deserve other than condescending obfuscation. I am sure you do also.
David,
ReplyDeleteThe fans of the Olympics might want to know who is the best athlete. But it would be an abrogation of responsibility if the Olympic Committee posted the times of all performances in ascending order. Not only should the Marathon winner’s time not be seen as inferior to that of the 100 meter dash winner, but the javelin thrower’s time is completely irrelevant.
You say that “such details can be overwhelming for the firm's clients, thus we recommend a broader, more intuitive model for them.” I hope that that does not mean that you think it is OK to give clients inappropriate evaluations of decisions, such as Brinson Sector allocation/Issue selection, even when that is not how they run their portfolios, just because it is simpler to compare them all with the same measure. I would not want to mislead clients with evaluations of purportedly controlled decisions when they were not at all the decisions being controlled.
I would like to discuss about fix inc attribution campisi approach. Can I do that here.
ReplyDeleteI'm all ears (eyes)!!!
ReplyDeleteDavid,
ReplyDeleteThe fans of the Olympics might want to know who is the best athlete. But it would be an abrogation of responsibility if the Olympic Committee posted the times of all performances in ascending order. Not only should the Marathon winner’s time not be seen as inferior to that of the 100 meter dash winner, but the javelin thrower’s time is completely irrelevant.
You say that “such details can be overwhelming for the firm's clients, thus we recommend a broader, more intuitive model for them.” I hope that you do not mean this to suggest ignoring your “universal rule.” Thus, I hope that your call for a broader model does not mean that you think it is OK to give clients inappropriate evaluations of decisions, such as Brinson Sector allocation/Issue selection, even when that is not how they run their portfolios, just because it is simpler to compare them all with the same measure. I would not want to mislead clients with evaluations of purportedly controlled decisions when they were not at all the decisions being controlled. In such matters, I strongly believe that no client deserves condescending obfuscation. From the prominence you give your “universal rule,” I am sure you agree to never timing your javelin throwers.
Andre
Andre, thanks for your note and question. The French committee called GRAP recommended that firms employ two approaches to FI attribution: one, that slices-and-dices the effects into several different parts, and one that's more general for the clients (perhaps that simply identifies the contributions from the yield curve, sector, credit, and selection decisions (and, I should also add, income). Such an approach would be more intuitive.
ReplyDelete