Performance attribution
Why did this fund beat its benchmark?
When a fund does better than its index, that extra return comes from two kinds of decision: which sectors the manager put money into, and which stocks they picked inside those sectors. This page divides the extra return between them, and shows the working.
A manager makes two kinds of decisions.
Attribution grades each one separately. That matters, because a manager can be bad at the first and good at the second.
Decision one: which sectors
How much money goes into technology, into energy, into healthcare. If the fund holds more technology than its index does, that is a bet. The model scores the bet by asking whether technology beat the market as a whole — not just whether it made money.
Decision two: which stocks
Inside technology, which companies the fund actually holds. This is measured against the technology index itself, so the manager gets no credit for a sector that went up without their help.
Why the market average matters
There are two ways to score a sector bet. One judges the sector on its own return, so overweighting anything that made a profit scores positive. Brinson-Fachler instead measures the sector against the whole index: putting extra money into a sector that returned 2% while the index returned 10% was a bad call, and only this way says so.
Break down a single fund.
Pick a fund. The benchmark is filled in for you, and everything below updates.
Sector by sector
Weights in %. Each effect is in percentage points of the fund's margin over its index
Sector bets next to stock picks
Which of the two did more work, in each sector
The same numbers, stacked
How much each sector added to the margin over the index
Compare two funds.
Two funds can end up with the same return and have got there in completely different ways. This is where that shows up.
Who bet on what
Return from sector choices, in each sector
What each fund's margin over its index is made of
Sector bets and stock picks, stacked
Change the weights.
Move a slider to hold more or less of a sector than the manager did. Everything below recalculates as you drag.
How much of each sector to hold
What if a sector crashes or rallies
These move a whole sector up or down. The fund and its index move together, so the manager's stock picking is unaffected — only the market underneath them changes.
Your sector bets against the manager's
Return from sector choices, in each sector
What it does to the total
The manager's portfolio next to yours
Three lines of algebra.
Written out for one sector at a time. Add them up across every sector and you get the fund's margin over its index exactly, with nothing left over — provided the fund's weights and the index's weights each total 100%. They do here. The sandbox in section 04 lets you break that, and the leftover shows up straight away.
What the letters mean
wi — how much of sector i the fund holds
Wi — how much of it the index holds
Rf,i — what the fund made in that sector
Rb,i — what the index made in that sector
RB — the whole index, Σ Wi Rb,i
RP — the whole fund, Σ wi Rf,i
Two terms or three
The third term covers the overlap: holding extra of a sector and picking well inside it. To report two numbers instead of three, fold the overlap into stock picks by using the fund's weight wi in place of the index weight Wi. Both versions add up to the same total. A version that drops the third term without making that swap does not — the two numbers then quietly fall short of the margin.
Where the data comes from
Everything here is made up, for teaching. The index names are real, but their weights and returns are invented too — the NASDAQ-100 shown here holds financials, which the real one does not. Nothing on this page is anyone's actual performance, or any index's actual composition, and none of it should be quoted as such.