Performance attribution - Future effect

 

PERFORMANCE ATTRIBUTION FOR PORTFOLIOS THAT TRADE FUTURES CONTRACTS

Insights into the impact of futures contracts on portfolio performance

 

AMINDIS INSIGHTS

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)

EXPLORE MORE ARTICLES

COMMON QUESTIONS ABOUT THIS TOPIC


The “future effect” refers to the distinct impact of futures contracts on portfolio performance—covering leverage, hedging, and imperfect correlation with the underlying asset class—separate from standard allocation or selection effects.


Because futures introduce unique dynamics such as implicit leverage, margining, and basis/correlation mismatches with the underlying asset, which cannot be captured adequately by traditional allocation or selection effects.


The model separates: (a) the allocation shift due to futures positions; (b) the actual securities selection impact excluding futures overlay; and (c) the correlation gap between the futures and their reference equity or asset class.


It enhances transparency and clearness by quantifying how futures contribute to performance or detract from it, enabling better strategy explanation, improved client communication, and more precise risk/return attribution.


Key challenges include: ensuring high-quality futures data, modelling basis/correlation accurately, handling leverage/margin effects, and aligning futures positions consistently with the benchmark universe.