Equity Return Attribution: Brinson-Hood-Beebower Model

Consider the following Sector A analyzed in the Brinson-Hood-Beebower model: | Sector | Portfolio Weight | Benchmark Weight | Portfolio Return | Benchmark Return | |:-----:|:-----:|:-----:|:-----:|:-----:| | A | 0.4 | 0.4 | 8% | 10% | What is the individual allocation effect attributed to the manager for this sector?

Correct!

Incorrect.

There is zero allocation effect, since the manager weighted the sector the same as the benchmark. Any return difference from this sector is purely a selection effect. For completion, the calculation is: >$$ (0.4 - 0.4) \times 10 \% = 0 \%$$.

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