Brinson Attribution¶
One-line definition¶
Decomposes active return per segment (sector, country, ...) into allocation (over/underweighting a segment), selection (picking better/worse names within it), and interaction.
Formula¶
allocation = (w_p - w_b) * r_b
selection = w_b * (r_p - r_b)
interaction = (w_p - w_b) * (r_p - r_b)
These three sum, segment by segment, to total active return
(w_p·r_p - w_b·r_b).
Why PMs care¶
"We beat the benchmark by 130bp" is not actionable. "We beat it because we were overweight tech (allocation) despite weak stock selection within tech (negative selection)" tells a PM what actually worked and what to fix.
Common mistakes¶
- comparing segments that aren't defined identically in portfolio and benchmark (a sector taxonomy mismatch silently breaks the decomposition)
- ignoring interaction because it's usually small — it can matter when active weights and active returns are both large in the same segment