An investment research group backed by consultancy WTW announced this morning it is making a returns analysis tool freely available, saying it hopes the move will help the institutional investment sector think longer-term, focusing more on the fundamental drivers of returns.
The Thinking Ahead Institute (TAI), an investment research and innovation members group sponsored by WTW, said it has released open-source computer code implementing its Fundamental Return Attribution (FRA) framework.
FRA is derived from the group’s research into the separation of short-term and long-term return components of an investment strategy, TAI said in a statement.
“This is about to change as institutional investors are equipped with new tools to help them think differently while shifting their focus towards asset managers’ decision-making abilities and the fundamental drivers of returns,” it said.
The code is designed to make it easy for investment organisations to apply this framework to their own portfolios, the group said.
Tim Hodgson, co-head of the TAI, said: “TAI research has identified a significant long-term investment premium – up to 1.5% pa – that can be harvested and shared with end beneficiaries.”
But institutional investors had got used to short-term performance measures, he said, adding that this habit had been perpetuated by traditional reporting methods, resulting in many investment mandates being terminated for the wrong reasons and at the wrong time.
“Hopefully, this is about to change as institutional investors are equipped with new tools to help them think differently while shifting their focus towards asset managers’ decision-making abilities and the fundamental drivers of returns,” said Hodgson.
The open-source code is designed to break down a portfolio’s returns into three components – changes in market sentiment; growth in portfolio fundamentals, and changes in the portfolio’s holdings, according to TAI.
This, it said, allowed for an evaluation of an investor’s decisions to be based not only on market-value returns, but also on changes in the fundamental attributes of the portfolio over time.
“This is intended to promote a longer-term outlook, and to enable an improved dialogue between asset owners and asset managers,” TAI said.
The code is freely available on github.com, the group said.
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