Understanding Performance Attribution in Portfolio Management

In the context of portfolio management, performance attribution is a method used to analyze the sources of a portfolio's returns. It allows portfolio managers and investors to determine which assets, sectors, or styles contributed positively or negatively to the overall performance of the portfolio.

Consider the following three statements regarding performance attribution:

• Statement 1: Performance attribution focuses only on absolute returns.
• Statement 2: It identifies the contribution of different assets and investment decisions to the overall portfolio return.
• Statement 3: Performance attribution can help in refining future investment strategies.

Which of the following statements is true regarding performance attribution?