Performance Attribution in Portfolio Management

Medium Performance Evaluation Performance Attribution

John is the portfolio manager of a mutual fund that invests in a diversified portfolio of equities. Over the past year, the fund has outperformed its benchmark index, the S&P 500, which returned 10%. Upon performing a performance attribution analysis, John finds that the majority of the outperformance is attributable to his sector allocation decisions rather than individual security selection within those sectors.

Which of the following statements best describes this situation in terms of performance attribution?

John's outperformance was primarily due to effective stock picking within sectors.

John's ability to allocate capital among different sectors contributed significantly to the fund's excess return over the benchmark.

The performance attribution analysis indicates the fund’s risk was higher than that of the benchmark.

Hint

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