Attribution Analysis Performance Evaluation

Michael is a portfolio manager who has been analyzing the performance of his equity mutual fund over the past year. He has calculated that the fund returned 12%, while a relevant benchmark index returned 10%. Michael is keen to understand how much of this outperformance can be attributed to market factors versus the specific decisions he made. He utilizes attribution analysis to dissect the performance, focusing on both sector allocation and stock selection effects.

Based on Michael's analysis, he attributes 5% of the performance to sector allocation and the remaining 7% to stock selection. Which of the following statements about Michael's attribution analysis is true?