Attribution Analysis in Portfolio Performance

Very Hard Performance Evaluation Attribution Analysis

ABC Investment Management has recently conducted an attribution analysis on its equity portfolio, which has significantly outperformed its benchmark index over the past year. The portfolio manager attributed the performance to sector allocation decisions and stock selection within those sectors. The analysis revealed that the portfolio's allocation to Technology stocks, which outperformed the benchmark by 15%, contributed positively, while the allocation to Consumer Goods, which underperformed by 5%, detracted from performance. Additionally, selective stock picks in the Healthcare sector accounted for a positive contribution of 10% compared to the benchmark.

Given the above information, which of the following statements about the contribution of the different strategies is true?

The sector allocation's affect on performance is solely dependent on relative performance of the sectors, not the stocks within them.

The attribution analysis shows that overall performance is driven more by stock selection than by sector allocation.

Attribution analysis indicates that a negative sector allocation can be offset by positive stock selection within that sector.

Hint

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