Fixed Income - Attribution analysis

[FrankCFA]

Q: What’s the difference between below in bold? Can we say if the return is “unexpected” by the manager, then it belongs to external interest environment?
1. Effect of the external interest environment:
• Return on the default-free benchmark assuming no change in the forward rates.
• Return due to the actual changes in interest rates.

2. Contribution of the management process:
• Return from interest rate management.
• Return from sector/quality management.
• Return from the selection of specific securities.
• Return from trading activity.

 

[cpk123]

interest rate management = some hedging activity - you make a bet on interest rates - and you adjust your investments accordingly. that provides you the interest rate management effect.

 

[Audacious]

in the first bold: interest rate changes just happen. can be good or bad depending on your position.
in the second bold: manager’s reaction to these changes. Can mitigate a loss, or enhance a gain. Or vice versa with unfortunate management style.