Impact of Attribution Analysis on Portfolio Performance

Medium Performance Evaluation Attribution Analysis

XYZ Asset Management has created a diversified portfolio consisting of large-cap equities, mid-cap equities, fixed income, and international equities. At the end of the year, the portfolio reported a return of 8%, while its benchmark, a composite index, returned 5%. Upon conducting an attribution analysis, the portfolio manager determines that outperformance is attributed primarily to selection effect in the large-cap equity allocation as well as an allocation effect favoring mid-cap equities.

Which of the following statements correctly highlights the implications of the attribution analysis performed by the portfolio manager?

The positive selection effect in large-cap equities indicates that security selection was successful relative to the benchmark.

The allocation effect suggests that mid-cap equities performed poorly compared to their benchmark, dragging overall performance.

Attribution analysis shows that the portfolio's total return is unrelated to the selection and allocation decisions made.

Hint

Submitted2.5K

Correct2.4K

% Correct98%