Primo Return = 0.6(17%) + 0.15(24%) + 0.25(20%) = 18.8%
Benchmark Return = 0.5(16%) + 0.4(26%) + 0.1(18%) = 20.2%
Primo – Benchmark = 18.8% - 20.2% = -1.4% Primo underperformed the benchmark by 1.4%.
To isolate the impact of Primo’s pure sector allocation decision relative to the benchmark, multiply the weighting differences between Primo and the benchmark for each sector by the difference in returns between the benchmark sector and overall benchmark return or ∑(wPj - wBj)(RBj - RB).
(0.6 - 0.5)(16 - 20.2) + (0.15 - 0.4)(26 - 20.2) + (0.25 - 0.1)(18 - 20.2) =
(0.1)(-4.2%) + (-0.25)(5.8%) + (0.15)(-2.2%) = -0.42% – 1.45% -0.33% = -2.2%
From the previous question the total within-sector selection = -0.1%
