There is, of course, nothing inherently wrong with undertaking risks; after all, that is perhaps the most important way in which high returns are achieved. Nevertheless, one must recognize that the contributions of economy-wide surprises to return can result in substantial deviations in the performance of a managed portfolio and its benchmark. For example, even for relatively small differences in risk exposures, economy-wide surprises often contribute plus or minus 10% per year to the difference between the return for a managed portfolio and its benchmark.

The danger to a portfolio manager is that exposures to economy-wide surprises will be taken inadvertently. If a manager focuses on selecting stocks with superior performance, then using BIRR to calibrate risk exposures to mimic those of an appropriate benchmark will insulate the manager's performance from unwanted economy-wide surprises. In addition, superior stock selection can be combined with active tilts toward or away from certain kinds of risks. For example, a manager who anticipates an upturn in economic activity might decide to tilt toward Business Cycle Risk, taking a conscious and limited additional risk exposure in order to achieve a higher return.

But whether or not a manager decides to undertake active tilts, it is always desirable to substitute concrete knowledge for ad-hoc guesswork. BIRR removes the guesswork by measuring the magnitudes of the exposures to the various economy-wide surprises, both for any portfolio and any benchmark. And, using the BIRR system, a manager can control these exposures over time as part of a strategic investment plan.

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