When we try to decompose the active return, we say that there are two components as source of this active return: the return tils and the asset allocation.

However, what do we mean by return tilts? Second, when we analyze the sensitivity factor for the portfolio and benchmark, we say that they are both different . For example, portfolio may take different sensitivity exposures than the benchmark, however, why do we say that the factor risk premium is the same for both? Usually for index return, we are not taking any risk premium …