Within-Sector Selection return is defined as?

The Within-Sector Selection return is accurately defined as the difference between the portfolio's return in a specific sector and the benchmark's return in that same sector. This measure focuses on how well a portfolio manager has performed relative to a standard or benchmark within a particular sector, highlighting the effectiveness of the active management strategy employed within that sector.

This definition is crucial for evaluating a manager's skill because it isolates the effects of the investments made within sectors, stripping away the influence of stock selection across different sectors or asset classes. It enables analysts and investors to specifically assess whether the manager has outperformed or underperformed compared to a relevant benchmark, thereby providing insights into the efficiency of sector allocation and stock selection decisions within that sector context.

The other options do not define Within-Sector Selection return accurately. For example, the second option combines returns from both the portfolio's holdings and benchmark returns but does not focus specifically on the performance differential within a sector. The third option suggests a comprehensive aggregation of sector returns rather than a comparison against a benchmark. Lastly, the fourth option misrepresents Within-Sector Selection by comparing sector investments to cash reserves, which is not relevant to the sector performance comparison.