Another Look at the Determinants of Portfolio Performance: Return Attribution for the Individual Investor

16 Pages Posted: 25 Apr 2005

See all articles by Craig W. French

Craig W. French

Portfolio Engineering Laboratory

Date Written: July 29, 2003


This study examines the total return of investment portfolios composed of mutual funds and analyzes the contributions of strategic asset allocation (investment policy), tactical timing (the periodic over- or underweighting of asset classes relative to the strategic weightings), and security selection (the selection of individual mutual funds to represent asset classes). The results of Brinson, Hood and Beebower (1986) and Brinson, Singer and Beebower (1991) are confirmed using a sample free of several data limitations in their samples. Utilizing data from five model mutual fund portfolios, covering a wide range of asset class combinations over a three year period, I demonstrate that strategic asset allocation policy explains more than 90 per cent of the variation in total portfolio return, and that tactical timing decisions and security selection may also contribute significantly to the variation in total return. I expand the existing literature by performing a pooled regression, which incorporates all portfolios together (in addition to examining each portfolio individually and averaging the results, as in Brinson et al.) I further demonstrate that the results are also valid when examining risk-adjusted return: I extend the analysis to include several types of risk measure, examining the data in terms of absolute and relative variance, and conclude the analysis with an evaluation of the portfolios in terms of riskadjusted return, demonstrating that the results obtained vis-a-vis total return also apply on a risk adjusted return basis.

Keywords: Determinants, portfolio, attribution

JEL Classification: G10, G11

Suggested Citation

French, Craig W., Another Look at the Determinants of Portfolio Performance: Return Attribution for the Individual Investor (July 29, 2003). Available at SSRN: or

Craig W. French (Contact Author)

Portfolio Engineering Laboratory ( email )

115 Pondview Drive
Washington Crossing, PA Pennsylvania 18977
United States
6108446040 (Phone)

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