Getting started using Ibbotson Attribution software: An unofficial tutorial MGT 544 Stanley Martinez, TA

Agenda: 1.Why this is important 2.Encorr Attribution a. Selecting a series/ benchmark b. Rolling style analysis c. Attribution d Regression e. Creating a portfolio of managers

1.Why this is important Alpha may not be a suitable criteria in a diversified portfolio Manager characteristics may not be stable over time Managers with similar strategies may exhibit varying correlations, risks and returns Manager results may be attributable to alternate factors Ibbotson Attribution allows analysts to answer these questions Methodology: “Returns based style analysis”, a constrained form of regression

2. EnCorr Attribution Main menu (at right) a.Select portfolios from “Manager/Portfolios” folder In this example, select: Raw Data  Piper Universe  Commingled Value/ Large Cap Value  Key Asset Management EB/ Select benchmarks from “Benchmarks” at folder In this example select all: Raw Data  Ibbotson database  Sample Domestic Equity Database: Your result will include Large Growth, Large Value, Small Growth, Small Value, Midcap, Microcap & Cash

2. Encorr Attribution b. Select Style In this example, the style of the selected managed portfolios should default to 3/88 to 12/98 One can also adjust the regression to “maximum accuracy” if desired

2. Encorr Attribution Results: 1.Average Style: Results at right show results of a regression with cumulative weights forced to 100% 2. Rolling style Results at right show how the weights have changed over time

2. Encorr Attribution c. Select Attribution Decomposes manager returns into Policy: returns due to the investor’s asset allocation decision Timing: returns due to investing in the right asset class at the right time Selection: returns due to the managers ability to select individual securities within an asset class In this example: Key’s Attribution  Policy: Timing: Selection 1.39

2. Encorr Attribution d. Select Regression Determine how statistically significant the manager’s returns are relative to their benchmark In this example, Key’s regression results are summarized below AlphaAlpha T Statistic BetaBeta T Statistic R Squared Number of Observations Key Asset Management Inc EB Value Equity

2. Encorr Attribution e. Market Capture How well is a manager performing when her benchmark is moving up or down?

“Thank you for completing this tutorial”