This questions is related to micro attributions calculations and it is not written in the CFA book:
Let’s say we are 31 August 2017 4pm and I want to calculate the micro attribution of my portfolio for the month of August:
* I know the Sector Returns (%) used will obviously be ( 31 Aug / 31 July -1 ) *100
* QUESTION: Am I using Sector Weights (%) as of 31 August 2017 or 31 July 2017?
Thanks!
Micro attribution consists of sum of 3 parts, Pure Sector Allocation, Within Sector Allocation and Allocation/Selection Interaction. Since you compare performance of your portfolio with valid benchmark, you should include benchmark’s weights and performance.
Pure sector allocation:
(Weight P sector-B sector) x (R pft sector - R total benchmark return ) +
Within Sector Allocation
( Weight B sector ) x (R pft sector - R benchmark sector) +
Allocation/Selection Interaction
(Weight P sector-B sector) x ((R pft sector - R benchmark sector)
Yes I am aware of these three formulas but you didn’t understand my question. If you take Sector Weight (%) of that formula and I want you to calculate the micro attribution of August using these formulas are you gonna use the Sector Weight (%) of July 31th or August 31th? Or an average of both?
You use weighted average return, ( (w 31 Aug) R 31 Aug /(w 31 July) R 31 July -1 ) *100