A really smart investor once told me: "All strategies are really just based on three things: entry criteria, exit criteria, and allocation." It is a lesson I took to heart and have leaned on throughout my career.

Studying attribution helps understand, relative to the right benchmark, whether the manager is producing excess gain because of reasons specific to the research and selection (i.e. exit and entry) or because of the allocation decisions.

Our Internet Advantage Strategy portfolios try to isolate on the benefits of selection; and minimize the impact of allocation. The strategy, after all, is an equal weight strategy. We don't let any individual stocks get too large as each monthly re-balance looks to make the portfolio an equal weight allocation.

So it shouldn't surprise you then that the long equity side of the IAS Equity Long Short portfolio shows attribution characteristics with a muted effect from allocation. As you can see in the chart image, for the trailing 12 months ending May 31, 2017, the overall gross return of that part of the portfolio is +30.47%

The active return over that time period is 13.03%. Of that, 10.32% of it is from stock selection and the remainder is from allocation decisions (based on the Morningstar sectors).

To further this point, remember that our average hold time for a stock is around 60 days. So we turned this portfolio over 6+ times during the trailing 12 months.

The portfolio held 241 unique stocks on the long side during this time period. 59% of those positions were winners. The average winner was up 12%; the average loser was down ~7.8%.

Want to see more of this analysis? Email me at Wayne.Ferbert@alphaDNAim.com.