Investments, tenth edition

 Figure 24.10 

Performance attribution of  i th asset class. Enclosed area 

indicates total rate of return.  

r

Pi

r

Bi

w

Pi

w

Bi

w

i

Return in Asset Class

Mixed Origin

(attributed to

selection)

Weight in Asset Class

Bogey Return

from ith Asset

Class = r

Bi

w

Bi

Allocation

Added by Selection

bod61671_ch24_835-881.indd   866

bod61671_ch24_835-881.indd   866

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  C H A P T E R  

2 4

  Portfolio Performance Evaluation

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over- or underperform its usual risk–return profile. In contrast, more risk-averse cli-

ents may set neutral weights of 45%/35%/20% for the three markets. Therefore, their 

portfolios in normal circumstances will be exposed to less risk than that of the risk-

tolerant client. Only intentional bets on market performance will result in departures 

from this profile. 

 In  Table  24.6 , the neutral weights have been set at 60% equity, 30% fixed income, 

and 10% cash (money market securities). The bogey portfolio, comprised of investments 

in each index with the 60/30/10 weights, returned 3.97%. The managed portfolio’s mea-

sure of performance is positive and equal to its actual return less the return of the bogey: 

5.34  2  3.97  5  1.37%. The next step is to allocate the 1.37% excess return to the separate 

decisions that contributed to it.