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Portfolio Construction·Performance Attribution
Brinson-Fachler Attribution
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Where did the alpha come from?
The Brinson-Fachler attribution model decomposes a portfolio's excess return over a benchmark into three sources: allocation (over- or underweighting sectors), selection (picking better stocks within each sector), and interaction (the cross term). This is the canonical framework every long-only manager reports against.
Brinson-Fachler decomposition
Excess return = Σ (w_p − w_b)(R_b,sector − R_b)
+ Σ w_b (R_p,sector − R_b,sector)
+ Σ (w_p − w_b)(R_p,sector − R_b,sector)