The Novus Framework is an attribution methodology decomposing performance into four degrees of freedom used by fundamental portfolio managers:

You can see your portfolio's performance decomposition with the Position Level Attribution template.

Market and category contribution together determine relative contribution, or beta. Security and trading contribution form the absolute contribution, or alpha.

You can access the four Novus Framework fields for any monthly or daily position level portfolio. They fields are Market Contribution, Category Contribution, Security Contribution and Trading Contribution, as seen below.

The Groups option in your component settings lets you decompose the performance of individual positions, your entire portfolio, or by category.

This analysis from our Position Level Attribution template, for example, helps you explore performance attribution breakdown by market cap (Large Cap is currently shown).

The Total Contribution of a given position during a period of time is defined as:

The Novus Framework then acts on Total Contribution, splitting it into its degrees of freedom.

What portion of my total contribution can be attributed to the market’s performance?

Market contribution isolates the component of total contribution of a security that can be attributed to broad market movements. The market return is the return of the portfolio’s top-level benchmark.

Common market benchmarks for equity positions are the MSCI World, S&P 500 and Euro Stoxx 600.

Market Contribution quantifies the return an investor would have obtained had she or he invested directly in the top-level benchmark. In a world which abounds with passive equivalents to express exposure, Market Contribution is the first hurdle which portfolio managers must clear in order to showcase their skill.

Did the sub-category out-perform the market? 

Category contribution isolates the component of total contribution that can be attributed to the performance of a category-specific benchmark. The benchmark/category mappings can be changed by toggling the “Breakdown” dropdown. The benchmark used will be the specific benchmark for the chosen category. For example, the S&P 1500 Information Technology benchmark is commonly used as the benchmark for the Tech Category using Sector Breakdown.

Category Contribution represents the additional value added by having chosen exposure in a specific category of the market (e.g., a specific sector, geography, or market cap) versus another.

Categories can either be classical reference tags (e.g., sector, market cap, and geography), or any partition of a manager’s investable universe. On the latter, value and growth could be categories as well, or investment thesis (momentum, turnaround, value-play). So long as securities can be assigned to either category univocally, and a reference benchmark can be assigned, the category is legitimate.

Note how in the formula above we are stripping out the market returns to measure the value added by the category over and above what has been explained by the market already. We will see this concept used again in the remaining two factors of the Novus framework.

Did this security outperform its category benchmark? 

The Security contribution isolates the portion of total contribution that came from holding this specific security, as compared to its category benchmark.

The idea in the above is to measure, given a jar or securities in each sector (or geography, or market cap), whether the chosen security has indeed outperformed the jar.

Did tactical trading around the security (expressed by actively modulating position sizes up and down) contribute to performance over and above the other factors? 

Trading contribution measures the value added (or detracted) by the portfolio manager tactically adjusting position sizes through the holding period. For example, increasing exposure ahead of earnings in expectation of a positive surprise announcement, or reducing exposure to take profits after a significantly profitable period are examples of tactical adjustments.

Trading FAQ

​Why am I seeing a non-zero trading contribution if position size is constant for the period?

Trading Contribution is the difference between the Novus-derived security returns and your provided return. Sometimes, the Novus-derived security returns may be different than the return provided by you or your administrator on that day. When that happens, you will see that (small) residual PnL in your trading contribution even if there is no position sizing change.

When should I expect to see zero trading contribution?

If the position size is not changed throughout the period and there is no residual/unexplained PnL, the trading contribution is zero.

Consider the five positions shown in the portfolio below. Let deconstruct the return for Abercrombie & Fitch Co. (ANF).

The position had a total of 100.05 bps over the period.

Let’s examine the underlying calculations in more detail using dashboards. Follow along here.

Initial component setup: Position Level, Fields as Columns, Dates as Rows, Select full time range of desired analysis.

Add the following fields to the component builder:

Now we can use custom calculated fields using the formulas in the previous section to calculate each degree of the Novus Framework.

TIP: You can duplicate this dashboard and switch the portfolio to reconcile the Novus Framework using your own data.

In the settings of a component, under Advanced, the Breakdown dropdown determines which category benchmarks the securities are compared against.

Note that changing the group by setting to a new category alone will not change the category benchmarks, so the breakdown setting needs to be adjusted when categories are changed in the group by.

The easiest way to see what benchmark each category is using is to pull in a field called 'Benchmark Name,' as in the Category-level chart above. This will show each category benchmark being used to calculate category contribution.

If you would like to compare your positions against a different benchmark, simply reach out to your client analytics team member, and we can switch it for you.