What is the main purpose of calculating Pure Sector Allocation return?

The primary goal of calculating the Pure Sector Allocation return is to evaluate how sector allocation decisions have affected the overall performance of a portfolio. This metric isolates the impact of the weights allocated to different sectors, allowing portfolio managers and analysts to understand the effectiveness of their tilts toward specific sectors in relation to market movements.

By focusing on the sector allocation return, practitioners can gauge the success or failure of their strategic decisions without being influenced by the performance of individual securities within those sectors. This provides a clearer view of the contribution made by the sector allocation to the overall returns, separate from stock selection or other factors.

While assessing total market risk and analyzing issuer credit quality are important in portfolio analysis, they measure different aspects of performance and risk management and do not specifically pertain to the evaluation of sector allocation decisions. Similarly, calculating returns relative to market liquidity focuses on a different metric and does not directly relate to the effectiveness of sector weightings in a portfolio.