A fund has excess performance of 1.5%.In looking at the fund's investment breakdown you see that the fund overweighed equities relative to the benchmark and the average return on the fund's equity portfolio was slightly lower than the equity benchmark return.The excess performance for this fund is probably due to _______________.
A) security selection ability
B) better sector weightings in the equity portfolio
C) the asset allocation decision
D) finding securities with positive alphas

Question

Quizplus · Accepted Answer

The fund's excess performance is likely due to the asset allocation decision, as the fund overweighed equities relative to the benchmark. While the equity portfolio may have had slightly lower returns than the benchmark, the overall asset allocation decision resulted in excess performance for the fund. It is possible that security selection or sector weightings also played a role, but the asset allocation decision is the most likely explanation given the information provided.

A Fund Has Excess Performance of 1