Portfolio Performance - Fixed-Income Attribution - interest rate management

[hei.so]

Pg 162 of book 6.
What is the difference between interest rate effect (expected, unexpected) and interest rate management effect? I know one is active and one is passive but:
For example
Let’s say the economy is strengthening and interest rates decrease/price increase. Yield curve changes and duration fall under management effect. Is that not the same as external movements that fall under expected/unexpected?
Also, what is the difference between expected/unexpected? What categories would fall under them?

 

[hlmasterchief]

Please correct me if I’m wrong…
Interest rate effect is not under management control.
the other one is due to how well they manage the duration, convexity and yield curve shape. This is based on assumption that you hold default free securities.

 

[IHateMyLIFO]

hlmasterchief wrote:
Please correct me if I’m wrong…
Interest rate effect is not under management control.
the other one is due to how well they manage the duration, convexity and yield curve shape. This is based on assumption that you hold default free securities.

This is correct. Unmanaged interest rate effect will be the same for all the active managers.

 

[hei.so]

^ I understand that, but what is it? See table on page 166.

 

[verse214]

Simplified: Expected Interest rate effect is just what the portfolio would have done with its given securities and starting interest rate curves for the period. Unexpected compares what expected predicts vs what actually happend (shifts, twists, turns in the interest rate curve).
The sum of the two is what would have been achieved with passive management.
The Interest rate management effect is just how well the investment manager dealt with changes in interest rates through adjusting convexity and duration of the portfolio. They do this by pricing everything as a default free bond and taking the difference between that and treasuries - something like that.