PERFORMANCE ATTRIBUTION FOR PORTFOLIOS THAT TRADE FUTURES CONTRACTS

Insights into the impact of futures contracts on portfolio performance

 

Estimated reading time: 4 min.

 

Futures contracts introduce unique effects in performance attribution that standard models may overlook. This article by Philippe Grégoire, Ph.D., and Yves Hennard, CAIA—published in The Journal of Performance Measurement—proposes a refined attribution model for leveraged or hedged portfolios. The model accounts for futures-related allocation shifts, separates securities selection from futures effects, measures leverage impact, and isolates returns generated by imperfect futures-benchmark correlations.

 


KEY INSIGHTS FROM THIS ARTICLE

 

    INCLUSION OF FUTURES EFFECTS IN ALLOCATION

    The authors demonstrate that futures require a distinct allocation effect. Incorporating this leads to more accurate attributions by clearly differentiating between traditional allocation and futures-driven dynamics.

    ISOLATING SELECTION VS. FUTURES INFLUENCE

    The proposed model isolates the selection effect attributable solely to securities, ensuring futures contracts do not skew performance insights.

    MEASURING LEVERAGE EFFECTS

    Futures inherently introduce leverage. The methodology quantifies how leverage impacts overall portfolio return attribution.

    ACCOUNTING FOR CORRELATION GAPS

    By isolating the return stemming from imperfect correlation between futures and underlying asset classes, the model provides deeper insight into performance drivers.

 

ENHANCING ATTRIBUTION FOR DERIVATIVES

This refined attribution model offers a more precise lens on portfolio performance when futures are involved. Asset managers can better understand the distinct contributions of futures, leverage, and selection decisions—leading to more transparent reporting and informed strategy development.

 

Download the full article (PDF)

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