Market Finance · 21. September 2024

In portfolio management, understanding "value added" (active return) is key to measuring performance relative to a benchmark. This outperformance is driven by two factors: asset allocation (how assets are distributed across classes) and security selection (the choice of specific assets). By comparing the portfolio’s return to the benchmark’s return, we calculate the total value added. Asset allocation considers how weight differences impact returns, while security selection isolates the effect