Part V

Across asset classes

The formulas so far work for any asset. But each asset class has its own sources of return, its own quirks in the data, and its own way of doing attribution. Here's what changes for equities, bonds, derivatives and currencies.

Equities: price, dividends and corporate actions

A share's return has two sources: the change in price and the dividends paid while you held it. Index providers publish both versions: a price index (price only) and a total return index (dividends reinvested). Over long periods dividends are a large share of equity returns, so comparing a total-return portfolio against a price-only index flatters the portfolio every single year.

R = P_end − P_startP_start + DividendsP_start price return + income return

Gross vs net dividends: Many countries withhold tax on dividends paid to foreign investors. Net total return indices assume a standard withholding rate; gross indices assume none. Choose the version that matches what the fund actually receives, or the benchmark gets a free advantage (or handicap).
Ex-dividend date: On the ex-date the share price drops by roughly the dividend, because new buyers no longer get it. Performance systems book a dividend receivable that day so the return doesn't show a false loss.
Splits and bonus issues: More shares at a lower price, same value. Price and position must be adjusted together or the return shows a fake crash followed by a fake rally.
Spin-offs, rights issues and mergers: Value moves from one line to another. Each needs a corporate action entry so the combined holding's return stays continuous.

Break down a share's return

One year holding one share.

Price at the start

Price at the end

Dividends per share

Withholding tax

Price return only

What a price index shows

Total return, gross dividends

Total return, net dividends

What the fund actually earned

The ex-date trap

A share at 50 goes ex-dividend for 1.50 in January; the market also rises a little, and the price ends January at 49. The dividend is paid in February, and the price ends February at 51.

Dividend booked	January	February	Two months
On the ex-date (accrual)	+1.00%	+3.96%	+5.00%
When the cash arrives	−2.00%	+7.14%	+5.00%

Same total, but on a cash basis January shows a loss that never happened and February shows a gain that's too big. Month-end breaks between an accounting system and a benchmark often come down to exactly this.

Equity attribution beyond sectors

The Brinson model in chapter 9 works for any grouping: sectors, countries, regions or market-cap bands. Many equity teams also use factor attribution, which explains returns by exposures to common drivers such as the market (beta), size, value, momentum, quality and volatility. Whatever the factors don't explain is stock-specific return, the purest measure of stock-picking.

For practitionersFactor attribution usually comes from a commercial risk model: the portfolio's active factor exposures times factor returns, with the remainder attributed to specific return. It complements Brinson rather than replacing it; a sector bet can be a disguised factor bet (a tech overweight is often a growth and momentum bet). Data traps to watch: withholding tax rates and reclaim timing, ADR/GDR vs local line pricing, securities lending income (in the return but not in holdings), stock dividends and scrip elections, and index providers' treatment of special dividends. Price the portfolio at the same close as the benchmark to avoid timing breaks.

All numbers are illustrative. The models are simplified for teaching: annual coupons, Black-Scholes options, simplified fee mechanics and no intra-period trading. Real systems add transaction-based returns, daily valuation, tax and corporate action processing, and reconciliation to the official TWR.