Portfolio Allocations vs Risk Contributions

What’s driving my portfolio?

April 2023. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Most investors analyze investment products based on their holdings
  • However, holdings often misportray of what is determining the risk profile
  • A factor exposure analysis can identify the performance & risk contributors


It is difficult to watch an hour of European television and not see an advertisement from the Italian confectionary company Ferrero. The ads for Kinder Schokolade feature large glasses of milk, the ones for Nutella buckets of hazelnuts, and for Mon Cheri farmers harvesting cherries. Essentially, these brands are trying to suggest there are health benefits when consuming their products. However, a nutritional analysis would highlight that 100g of Kinder Schokolade contains 53g of sugar, which despite being delicious, is anything but healthy.

There are plenty of products in the investment world that are similarly misleading. Private equity, venture capital, and real estate are all marketed as providing uncorrelated returns to stock markets, but these “alternative” asset classes provide nothing but exposure to the economy, ie the same risk exposure as the S&P 500 (read Private Equity: Fooling Some People All the Time?). If the economy enters a recession, then private as well as public company valuations decline.

However, even a traditional equity / bond (60/40) portfolio can be misleading as the holdings do not provide a meaningful perspective of what is driving its performance and risk profile.

In this research article, we will contrast portfolio allocations versus risk contributions.


First, we run a simple factor exposure analysis on the BlackRock 60/40 Target Allocation Fund (BIGPX) using returns from the last 12 months. The name of the fund is misleading as it does not just provide exposure to US equity and bond markets, but also to international and emerging market stocks. Some of the positions are unusual as they practically provide opposite factor exposures, eg the fund holds a European value and a European growth ETF (read Growth ETFs: