Performance Attribution Analysis of a Diversified Portfolio

ABC Asset Management manages a diversified portfolio for its client, XYZ Corporation, which consists of equities, fixed income, and alternative investments. Over the last year, the portfolio has outperformed the benchmark by 200 basis points (2%). The manager attributes this outperformance to both strategic asset allocation and tactical asset allocation decisions.

You are tasked with conducting a performance attribution analysis for the portfolio. You have the following information:

• Strategic Asset Allocation: 60% equities, 30% fixed income, 10% alternatives
• Actual Asset Allocation: 65% equities, 25% fixed income, 10% alternatives
• Benchmark Returns: Equities: 8%, Fixed Income: 4%, Alternatives: 10%
• Portfolio Returns: Equities: 10%, Fixed Income: 6%, Alternatives: 12%

Using the information provided, analyze the contributions to the portfolio’s return attributed to asset allocation and stock selection. Provide a clear explanation of performance attribution, including calculations that demonstrate how the portfolio's outperformance can be segmented into these components.