Attribution Analysis of Portfolio Performance

Hard Performance Evaluation Attribution Analysis

ABC Wealth Management has three portfolios: Portfolio X, Portfolio Y, and Portfolio Z. Each portfolio is evaluated to assess the effectiveness of investment decisions and asset allocation strategies. Over a one-year period, the returns for each portfolio were as follows:

Portfolio X: 8% return
Portfolio Y: 5% return
Portfolio Z: 6% return

The benchmark index for these portfolios returned 7%. The performance evaluation team conducted an attribution analysis on these portfolios. They identified that Portfolio X's excess return over the benchmark was largely driven by favorable stock selection within the technology sector, while Portfolio Y's underperformance was primarily attributed to poor sector allocation. Portfolio Z managed to keep pace with the benchmark through a well-balanced approach to asset allocation without strong deviations in security selection.

Given the information above, which statement correctly reflects the attribution analysis conclusions for these portfolios?

Portfolio X outperformed due to superior asset allocation decisions.

Portfolio Y underperformed primarily due to sector allocation issues.

Portfolio Z achieved its returns through aggressive stock picking.

Hint

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