Brinson Performance Attribution: Benchmark, Timing, and Security Selection
Summary
The document explains a Brinson framework for separating portfolio returns into a policy benchmark, active asset allocation or timing, security selection, and their interaction. The benchmark reflects long-term asset-class weights and passive returns. Comparing the actual portfolio with benchmark-based combinations helps attribute excess return to allocation decisions and security choices, while preserving an interaction term for their joint effects.
A simulated example uses six stocks across two industries over ten years, with randomly generated returns and changing industry weights and stock selections. The reported results show that selection contributed more than timing on average, while a large loss in one year was associated with overweighting the weaker industry and a losing stock. The example illustrates attribution rather than proving persistent skill: it is simulated, limited to a small portfolio, and provides no evidence that the observed contributions would continue out of sample. The framework is presented as a way to assess investment decisions, not as a return-generating strategy.
Key ideas
- Brinson attribution separates benchmark return from active timing, security selection, and interaction effects.
- A policy benchmark requires specified asset-class weights and passive returns.
- Timing measures the effect of changing asset-class weights relative to the benchmark.
- Selection measures active asset returns relative to passive returns, weighted by policy allocations.
- A simulated example attributes most average excess return to security selection, but does not establish repeatable skill.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.