Performance analysis, from the external point of view of a client who would only have access to returns and holdings of a fund, evolved towards exact attribution made in the context of portfolio optimisation, which is the internal point of view of a manager controling all the parameters of this optimisation. Attribution is exact, that-is-to-say no residual ‘interaction’ term remains, and various contributions to the optimal portfolio can be identified: predictive signals, constraints, benchmark.
However constraints are identified as a separate portfolio and attribution for each signal that are used to predict future returns thus corresponds to unconstrained signal portfolios. We propose a novel attribution method that put predictive signals at the core of attribution and allows to include the effect of constraints in portfolios attributed to every signal. We show how this can be applied to various trading models and portfolio optimisation frameworks and explain what kind of insights such an attribution provides.