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Attribution analysis: the portfolio level

Attribution analysis: the portfolio level. Style: manager types. Manager A: ‘we are good at forecasting sectors’ Top down Manager B: ‘we are good at picking buildings’ Bottom up This produces the standard two term attribution. Property fund manager styles.

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Attribution analysis: the portfolio level

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  1. Attribution analysis: the portfolio level

  2. Style: manager types • Manager A: ‘we are good at forecasting sectors’ • Top down • Manager B: ‘we are good at picking buildings’ • Bottom up • This produces the standard two term attribution

  3. Property fund manager styles • What are the typical property fund manager styles? • Top-down, research-led, passive • Bottom-up, deal-led, opportunity funds, active • Sector specialists • Value and growth • Theme-based: rotational • What are the typical property fund manager performance drivers? • Structure • Stock

  4. Segmentation • Coherent market segments: common economic drivers • Manageable by a single team which can be rewarded for its performance • Benchmark information available • IPD segments: property type, property location

  5. Portfolio attribution • Two components to risk: structure and stock • first comes from position relative to benchmark • second comes from unique individual buildings • The larger the bets, the riskier the portfolio • If structure identical to benchmark: all risk is stock specific • Which is most important? IPD method and data typically allocates 75%+ to stock • Example: out-performance (1.0) = structure (0.1) + stock (0.9)

  6. Structure and stock: example

  7. Out-performance • Fund: 9.1% • Benchmark: 8.0% • Out-performance: 1.1% • Attribution? • Structure • Stock

  8. The structure component • UK: no structure component • France: 25% bet, -3% result, -0.75% contribution • Netherlands: -20% bet, -13% result, 2.6% contribution • Germany: -5% bet, 17% result, -0.85% contribution • Total structure score: -0.75%+2.6%-0.85% =1%

  9. The stock component • UK: 30% weight, 2% result, 0.6% contribution • France: 50% weight, 1% result, 0.5% contribution • Netherlands: 5% weight, -5% result, -0.25% contribution • Germany: 15% weight, -5% result, -0.75% contribution • Total stock score: 0.6%+0.5%-0.25%-0.75% =0.1%

  10. How are allocations made? • Allocator • uses forecasts of benchmark sectors to allocate? • uses forecasts of return on current stock plus benchmark sectorsto allocate? • uses subjective judgement regarding skills of sector specialiststo allocate? • Selector • buys, manages and sells • Two terms may be correct: but should the cross-product be allocated to the allocator?

  11. Structure and stock: example Who deserves the bonus?

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