Net Management Effect
Net Management Effect | Definition
The value added by active portfolio management. Russell Performance Attribution (RPA) derives this value by subtracting the benchmark return from the portfolio or composite return. The net management effect is the sum of the:
Allocation Effect
Measure of the impact of decisions to overweight or underweight particular asset categories relative to a benchmark. A positive allocation effect results from: (a) overweighting sectors or countries that produce greater returns than the benchmark average; or (b) underweighting sectors or countries that produce lower returns than the benchmark average.
Selection Effect
Measure of the impact of choosing securities that provide different returns from the benchmark. The selection effect evaluates the manager's skill in choosing better performing securities than those in the benchmark.
Interaction Effect
Measure of the combined impact of allocation and selection. In RPA interaction effects can be displayed separately on attribution reports or included with selection or allocation effect reports.
Currency Effect
Measures of the impact of overweighting or underweighting currency exposures in the portfolio relative to the benchmark. RPA calculates the currency effect when the local currency is different from the reporting currency. Spot exchange rates and 30-day forward exchange rates are used as currency data. The currency effect has two components: currency management effect (the results of managing currency surprise) and the forward premium effect.
Related to Net Management Effect:
- Geographical Hedge Fund Guides
- Hedge Fund Employment Guide
- Financial Certification
- Investment Book
- Hedge Fund Terms and Definitions
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