In equation 66-21 they break up active return into two parts: Factor Tilt Returns, and Asset Selection.
Active Return= SUMMATION[(Portfolio Sensitivity)j - (Benchmark Sensitivity)j] * (Factor Return)j + Asset Selection
I understand that the differences in sensitivities to the factors multiplied by the factor returns gives you the excess return over the benchmark due to active management. But what is the “Asset Selection” part?? Isn’t that already encompassed into the first part? How is this not double counting?
