Skip to Content
Andy Sparks

Andy Sparks
Managing Director and Head of Fixed Income Research Strategies

INTEGRATED FIXED-INCOME RISK AND PERFORMANCE ANALYSIS

Asset managers look at both risk and return in their portfolios. However, it is not always so easy to report and analyze risk and performance attribution on the same platform and along the same dimensions. This type of integrated ex‐ante and ex-post analysis can be carried out in BarraOne, MSCI’s multi‐asset class, multi‐currency, risk and performance analysis platform.

The BarraOne platform enables portfolio managers to conduct the time-consuming task of reconciling portfolio holdings only once. Meanwhile, the underlying risk forecasting model, the correlated stress test engine and the performance attribution model can be used together to provide a coherent side‐by‐side attribution of both risk and return. The results can be used to create an integrated dashboard to help understand if return drivers are aligned with the risk factors to which the portfolio is exposed.

In a case study, we revisited the 2013 example of when the U.S. Federal Reserve would have been most likely to taper the size of its Treasury and mortgage‐related bond‐buying , most likely leading to a gradual rise in long‐term interest rates; the question was how long would this pivotal event be delayed and how could portfolio managers best profit in this uncertain interest rate regime?

Using the MSCI Macroeconomic model[BS1] , we demonstrated that the probability of starting tapering during September 2013 — as some investors anticipated — was low. This likely delay was then used as the basis for making informed tactical allocation decisions in a sample global sovereign bond portfolio.

The case study illustrated how institutional investors can form allocation strategies based on insights from models that can help prepare for unprecedented events. We focused on fixed income; however, the analysis can be extended to equity and multi‐asset class portfolios in BarraOne.

 

Feedback Loop between Risk and Performance Analysis

Read the paper, “Integrated Fixed Income Risk and Performance Analysis in BarraOne.” (Client access only)

Back to Top