Attribution Analysis of Multi-Asset Portfolio Performance

Imagine you are a portfolio manager who is tasked with evaluating the performance of a multi-asset portfolio comprised of domestic equities, international equities, and fixed-income securities. The portfolio has a benchmark composed of 50% domestic equities, 30% international equities, and 20% fixed-income securities. For the past year, the portfolio has generated a return of 10%, while the benchmark has returned 8% over the same period.

Using attribution analysis, evaluate the performance of the portfolio in relation to the benchmark. Specifically, identify the sources of excess return attributable to both asset allocation and security selection. Provide a comprehensive analysis, ensuring to include numerical calculations where applicable.

In your response, address the following:

• Calculate the portfolio's return relative to the benchmark's return.
• Analyze the contribution of asset allocation versus security selection to the total excess return.
• Discuss any potential limitations or caveats tied to the attribution analysis performed.