From a data pack on Himalika Mutual Fund's flexi cap fund: it lagged its benchmark by 1.6% last year; sector allocation added 0.8%, stock selection cost 2.1% and cash drag 0.3%. Write the three-minute review for the investment committee and say what you would ask the manager.

The fund lagged by 1.6 points because stock selection cost 2.1; good sector calls and a little cash drag only partly offset it. Most of the selection loss sits in financials, 1.4 points. One year is within the fund's normal range, at a tracking error of about 4%, so the committee should not act yet. Ask the manager what went wrong in financials, whether the thesis still holds, and why cash averaged 4%, then review again in two quarters.

A doctor reading a blood report does not read every line aloud; they go straight to the result outside the normal range. An attribution review should do the same: state the result, go to the largest negative line, explain it, and say what you want to know. The arithmetic first: 14.0% plus 0.8 minus 2.1 minus 0.3 gives 12.4%, a 1.6 point lag, about Rs 96 crore of return on a Rs 6,000 crore fund.

Allocation of +0.8 means the manager's sector bets were right: overweighting the sectors that did well. Selection of -2.1 means the stocks chosen inside sectors did worse than the sectors themselves. For a flexi cap manager, selection is the core skill being paid for, so a selection loss larger than the whole lag is the headline. The breakdown narrows it further: financials cost 1.4 of the 2.1 points, two thirds of the loss in one sector.

Cash of about 4% in a year when the market rose 14% would cost 4% of 14%, about 0.56 points, if the cash earned nothing; earning about 6.5% on it brings the cost to 4% of 7.5, which is 0.30 points, the figure reported. So the cash drag is a choice the manager made, not an accident, and it deserves one question. Was the cash a market call, or did inflows arrive faster than the manager could invest them?

Not on this evidence alone. With a tracking error of about 4%, a lag of 1.6 points is about 0.4 of a normal year's deviation: unwelcome, well within the range of a fund that is genuinely active. Acting on one year of attribution punishes managers for the variation that comes with being different from the index. What would change the view: the same selection losses for a second year, a change in the manager's stated process, or evidence that the financials loss came from one large position outside the fund's usual limits.

The three questions for the manager, in order. Which stocks in financials cost 1.4 points, and has the thesis behind them changed or only the price? Was the 4% cash a deliberate call, and what is the rule for deploying it? And is the allocation gain repeatable, or did one sector call carry the year? Close the review with a recommendation the committee can act on: keep the fund on the list, ask for the manager's written answers, and review in two quarters.