Performance Attribution

Performance attribution is the analysis that explains why a portfolio's return differs from its benchmark. It decomposes the gap into the decisions that caused it — which asset classes you over- or under-weighted, and which securities you picked within them.

Advisors and portfolio managers use attribution to separate skill from luck and to explain results to clients and investment committees. When a portfolio beats its benchmark, attribution shows whether allocation, selection, or currency drove the win — and whether the process is repeatable.

Attribution is a reporting-heavy feature of portfolio management software, which needs clean holdings, transaction, and benchmark data to compute it accurately.

A standard attribution splits excess return into:

• Allocation effect — from weighting sectors or asset classes differently than the benchmark
• Selection effect — from the specific securities chosen within each group
• Interaction effect — the combined residual of the two

Reliable attribution depends on daily pricing and disciplined reconciliation upstream.