Hi, here is the background info. I have highlighted the key sentence.
Why is the sentence correct? Isn’t active return only contributed by asset allocation return and security selection return?
Suppose that your benchmark is 60% equity, 40% fixed income, and that the fixed income is 50% government bonds and 50% corporates.
You get active return if you go to 70% equity / 30% fixed income (allocation effect), if your fixed income is 40% government / 60% corporate (sector selection effect), or if you choose different individual corporate bonds (security selection effect).
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You’re quite welcome.