Attribution Analysis of Portfolio Performance

During the recent fiscal year, ABC Investment Management formulated a diversified portfolio for its client, Mr. Smith, with an objective of achieving a 6% return. The portfolio, benchmarked against a policy index composed of 60% equities and 40% bonds, produced a return of 4%. The client has expressed dissatisfaction with this outcome. As a portfolio analyst, you are required to conduct an attribution analysis to evaluate the performance of the portfolio compared to the benchmark.

Using the provided performance data for the year, which includes the returns of individual asset classes, relative weights, and benchmark allocations, analyze the sources of performance shortfall. Discuss the allocation effect, selection effect, and any other pertinent factors that contributed to the portfolio's performance relative to the benchmark. Finally, provide recommendations for improving future performance metrics based on the findings from your attribution analysis.