Tuesday, February 16, 2010

January Performance Attribution

At the end of each month the Pinnacle investment team analyzes our portfolio returns to determine how we made or lost money versus our investment benchmarks for the month. The chart below shows the analysis for the Dynamic Moderate Growth strategy where we lost about 0.35% to the benchmark (60% S&P 500 Index and 40% Barclay’s Aggregate Bond Index) for the month of January. We divide our performance attribution into two main categories, investment allocation and investment selection. For example, we could add value to our portfolio returns in a bear market in theory by owning less than 60% of stocks in our managed accounts. We could also theoretically add value by owning the individual sectors and industries in the S&P 500 Index that outperformed the broad market for the month.

The cash attribution is usually negative in the months that we sweep our fees from client cash accounts. Our underweight bond allocation and our overweight in corporate and mortgage bonds was a negative since Treasury bonds were the best performers in a month where stocks declined in value. Our underweight in stocks as well as our allocations to conservative international mutual funds contributed big positives to our monthly attribution performance, even though the absolute returns for our stocks was negative for the month. Our alternative investments were the biggest drag on relative performance because a large percentage of the alternative returns were compared to bonds versus stocks for the month. Portfolio performance attribution is but one of many ways we analyze portfolio construction and performance on an ongoing basis.

Note: The performance attribution chart above is based on a sample of one Pinnacle portfolio that is invested to the Pinnacle Dynamic Moderate Growth model. Attribution for other portfolios invested to the DMG model may vary slightly due to minor differences in security weightings. Please read the disclaimer at the bottom of this webpage for important performance-related disclosures.