Rev. Date May 29, 2019

The intercept coefficient represents the average excess return of the asset that is not due to exposure to any of the factors included in the analysis. It may represent a measure of active managers' effectiveness in generating returns not driven by systematic risk.

The residual captures the return or risk not explained by the linear factor model. Given that it is a static conditional estimation, it may be useful for investors to evaluate portfolio performance over time as the sum of

, that is, the overall historical portfolio return that is not linearly explained by the chosen risk factors.

In some areas of the application we feature the cumulative residual return. This represents an accumulation of the residual's contribution to return, computed using static beta estimates over the analysis period selected.

This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.

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