When should exposures of portfolio and benchmark to factors be determined?

Determining exposures of a portfolio and benchmark to factors should occur at the beginning of the evaluation period. This timing is crucial because it establishes a baseline from which performance can be assessed. By identifying exposures initially, analysts can understand how various factors influence returns, allowing for a more accurate analysis of performance relative to the benchmark over the evaluation period.

Establishing factor exposures at the beginning helps in setting expectations for performance and risk, as well as in developing strategies for portfolio adjustments. Additionally, having this information upfront aids in evaluating the impact of realized returns against the anticipated returns based on those exposures.

While continuous assessment could theoretically allow for real-time adjustments, it may lead to unnecessary complexity and potential for overreacting to short-term fluctuations. Meanwhile, evaluating exposures at the end of the period would not provide insights into how factors influenced performance throughout the period, limiting the effectiveness of the evaluation. Assessing during the reporting period might not afford sufficient time for adjustments based on the initial understanding of risks and exposures.