Getting started using Ibbotson Attribution software:

An unofficial tutorial

MGT 544

Stanley Martinez, TA

03.08.01

Agenda:

1. Why this is important

2. Encorr Attribution

a. Selecting a series/ benchmark

b. Rolling style analysis

c. Attribution

d Regression

e. Creating a portfolio of managers

1. Why this is important

• Alpha may not be a suitable criteria in a diversified portfolio

• Manager characteristics may not be stable over time

• Managers with similar strategies may exhibit varying correlations, risks and returns

• Manager results may be attributable to alternate factors

Ibbotson Attribution allows analysts to answer these questions

Methodology: “Returns based style analysis”, a constrained form of regression

2. EnCorr Attribution

Main menu (at right)

a. Select portfolios from “Manager/Portfolios” folder

In this example, select:

Raw Data Piper Universe Commingled Value/ Large Cap Value Key Asset Management EB/

Select benchmarks from “Benchmarks” at folder

In this example select all:

Raw Data Ibbotson database Sample Domestic Equity Database:

Your result will include

Large Growth, Large Value, Small Growth, Small Value, Midcap, Microcap & Cash

2. Encorr Attribution

b. Select Style

In this example, the style of the selected managed portfolios should default to 3/88 to 12/98

One can also adjust the regression to “maximum accuracy” if desired

2. Encorr Attribution

Results:

1. Average Style:

Results at right show results of a regression with cumulative weights forced to 100%

2. Rolling style

Results at right show how the weights have changed over time

Large Growth

Large Value

Mid Cap Growth

Mid Cap Value

Small Growth

Small Value

Micro Cap Cash R Squared

Key Asset Management Inc EB

Value Equity

30.02 59.51 0.00 0.00 0.00 0.00 3.59 6.88 96.93

Time

WeightsKey Asset Management Inc EB Value Equity - Estimated Weights

Rolling Style Distribution

0.0%

100.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

Mar1993

Dec1998

Jun1993

Dec1993

Jun1994

Dec1994

Jun1995

Dec1995

Jun1996

Dec1996

Jun1997

Dec1997

Jun1998

Large Growth Large Value Mid Cap Growth Mid Cap Value Small Growth Small Value Micro CapCash

2. Encorr Attribution

c. Select Attribution

Decomposes manager returns into

• Policy: returns due to the investor’s asset allocation decision

• Timing: returns due to investing in the right asset class at the right time

• Selection: returns due to the managers ability to select individual securities within an asset class

In this example: Key’s Attribution Policy: 18.33

Timing: -0.79

Selection 1.39

2. Encorr Attribution

d. Select Regression

Determine how statistically significant the manager’s returns are relative to their benchmark

In this example, Key’s regression results are summarized below

  Alpha Alpha T Statistic

Beta Beta T Statistic

R Squared

Number of Observations

Key Asset Management Inc EB Value Equity

0.0025 1.2998 0.9984 36.4293 0.9693 44

2. Encorr Attribution

e. Market Capture

How well is a manager performing when her benchmark is moving up or down?

“Thank you for completing this tutorial”