How to Calculate Performance Based on Benchmark

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Making sure you made the right decision with your investments is part of where calculating performance comes in. Calculating performance attribution includes measuring the weight of each sector's performance against the weight in relation to the benchmarks. Measuring performance against benchmarks shows the difference in performance comparisons and gives an estimate to base it upon.

Things You'll Need

  • Calculator
  • Annual performance report

Obtain the benchmark returns of the sector, overall return on the benchmark, sector weights of the benchmark, sector weight of the portfolio, the return on the portfolio and portfolio return on the sector from the published annual performance report.

Get the difference between the weight of each sector in the portfolio from the weight of each sector in the same benchmark.

Multiply the difference in returns obtained from the benchmark return of the sector and the portfolio return of the sector with the difference you obtained in Step 2.

Combine all the sector allocations together from Step 1 to get the aggregate estimate for the sectors.

Multiply the difference between the portfolio return of sector and the benchmark return of sector with the benchmark weight of sector.

Add the estimates from Step 3 and Step 5 to obtain the benchmark value-added return.

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References

  • "Investment Performance Attribution"; Spaulding, D
  • "Investment Performance Measurement"; Fiebel, B
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