The return attributed to Allocation/Selection Interaction is calculated by?

The return attributed to Allocation/Selection Interaction is calculated by summing the differences in weight between the portfolio and the benchmark, which are then multiplied by the sector returns. This method allows for the quantification of the active management decision's impact on the portfolio's performance compared to the benchmark.

In this context, "allocation" refers to the way different assets or sectors are weighted in the portfolio relative to the benchmark. By assessing the difference in these weights between the portfolio and the benchmark, and multiplying these differences by the returns of the respective sectors, one can isolate the effect of asset allocation decisions. This computation effectively quantifies the degree to which the choice of sector weights contributed to the overall return, separating it from the performance of individual securities chosen within those sectors.

The other options do not correctly describe the method for calculating Allocation/Selection Interaction. Calculating the average performance of all sectors over time does not consider the specific weights and thus misses the interaction effects. Adjusting total fixed income returns by sector allocations is not relevant to the specific calculation of the interaction effect. Finally, analyzing the impact of bond ratings on portfolio returns focuses on credit quality rather than allocation or selection decisions.