As promised, I have prepared an Attribution Analysis for MAPF for August. This will be prepared every month for all segregated accounts under management.
The Attribution Analysis determines the portfolio’s expected return at the beginning of the period, given the portfolio composition on that date and the subsequent total return of each of the issues to the end of the period. Note that if a particular issue goes ex-dividend during the period, the dividend is assumed to be reinvested in that issue at the bid price.
Naturally, there is a reconciliation term required as well, since the portfolio will generally experience trades and possibly cash-flows during the month, which means that the estimate made by examination of the initial portfolio will not be accurate.
Thus:
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The term “rpi” requires a bit of explanation. Obviously, if “instruments” refers to a single issue then “rpi” will be the same for all p. However, in this analysis I am using “instrument” to refer to a group of instruments – that is, the sub-types of preferred shares I show every day in the Market Action Reports. Since the composition of each sector will differ from portfolio to portfolio, the projected returns for that sector will be from portfolio to portfolio accordingly; that is, Portfolio #1 might have a different projected total return for PerpetualDiscounts than does Portfolio #2.
So, having broken down projected returns for both the portfolio and the index by sector, we can now do the attribution analysis. This requires a bit of elementary algebra:
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So that’s the theory!
The determination of projected returns for MAPF and the index for August, 2018, by HIMI sub-index is:
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And the determination of sources of excess return is:
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Finally, the full report (which includes details of the above calculations) is available as a PDF.
There are a few problems. First, my routines for performance calculation of a security don’t work if the security undergoes a reorganization during the period (e.g., gets redeemed, changes the dividend rate and so on). I’ll be fixing that soon, but for now I am just substituting a zero return for these securities. Second, my printing routine has a few glitches which show up in the detail section. I’ll be fixing that soon, too, but I hate the whole printing rigamarole. I’ll have to take a half-bottle or so of tranquilizers, first!