What does Within-Sector Selection return imply about the manager's actions?

Within-Sector Selection return is indicative of the manager’s skill in selecting individual securities that deviate from the benchmark weights within a particular sector. This means that the manager is actively choosing securities that are over- or under-weighted compared to the benchmark in order to achieve better returns.

When a manager is focused on within-sector selection, they are looking closely at the characteristics of the securities in a specific sector to identify which ones are likely to outperform. This involves a detailed analysis of individual companies or securities rather than simply mimicking the sector allocation of the benchmark. As a result, the returns generated from within-sector selection are primarily driven by the manager's ability to pick securities that are expected to perform better than others in the same sector, thereby creating value through active management.

In contrast, holding securities in the same ratios as the benchmark, adjusting sector weights for optimization, or investing across all sectors without regard to the benchmark do not capture the essence of within-sector selection. Such actions imply a more passive or broad approach to investment rather than the focused security selection implied by the concept of within-sector returns.