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Another Rec Rectified!
The reconciliation of total position performance contributions to total fund performance, multi-period especially, has always been an issue.
The two should always reconcile but for mathematical reasons usually fail by small amounts. Although this problem is as old as Contribution Analysis itself, historically it has been ignored.
Increasingly, however, this failure to reconcile is being noticed and questioned by the more observant clients. Teachins has been part of highlighting and extending a solution originally mentioned 16 years ago!
Teachins with others has developed spreadsheet examples which extend the totals reconciliation methodology originally mentioned by Bruce Feibel in his 2003 book ‘Investment Performance Measurement’.
The examples increase the complexity of the requirement through adding further days, buy/sell trades and cash movements to the original example while continuing to achieve a satisfactory reconciliation. They also compare the results to those that could be achieved through ‘borrowing’ one of the ‘Attribution Smoothing’ methodologies, in this case Carino Factors.
The spreadsheet examples were incorporated into two articles published by the Journal of Performance Measurement in 2019 (links below).