Performance Attribution as a Guide to Portfolio Allocation

The Attribution tool in the PORT portfolio and risk analytics solution in Bloomberg can help us understand how much of our past portfolio performance has come from sector allocation, how much from security selection within sectors, and how much from an interaction between the two. We can use the selection effect to get a sense of how well we have done on past stock picks in the same sector to guide a hypothetical new allocation. While an optimized allocation is the best way to go, in cases where optimization fails this can provide an additional data point in guiding your allocation decision.

The specific example we will consider is an attribution analysis of an equal-weighted portfolio of the 2019 picks from Barron's Magazine* as a guide to evaluating an allocation to their recent pick of Kraft Heinz (KHC) stock in the Consumer Staples sector.


This video assumes the viewer is familiar with the components of the Brinson attribution model, as well as with the basics of entering a portfolio into the Bloomberg software.
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Barron's Magazine covers US financial news and provides forward-looking stock analysis. This example is for illustration purposes only and is not intended as investment advice.