Evaluating Fund Performance: Risk-Adjusted Returns

XYZ Asset Management has recently been evaluating the performance of one of its equity funds, Fund A, which focuses on small-cap growth stocks. The fund manager claims that the fund has outperformed its benchmark, the Russell 2000 Index, over the past five years. The manager asserts a 10% annualized return compared to the index's 7% return during the same period. However, upon further investigation, it is discovered that the fund has exhibited significantly higher volatility than the benchmark.

As a charterholder tasked with assessing Fund A’s performance, which of the following statements is particularly relevant for performing a proper performance appraisal?