Remember that with attribution, we align "sets" of securities in the portfolio with their equivalent "set" in the benchmark. An aside: to my knowledge, I may be the first person to use the term "set." I think it works, though. For example, we can have a:
- Set of all items: this would be the portfolio
- Set of one item: this would be security level attribution, which I oppose, save for absolute attribution (aka "contribution")
- Set of no items; i.e., the "null set": would apply where the portfolio is void a set (e.g., a sector) that the benchmark has securities in.
Thus, if we have mutual funds that fit into the small cap equity set, for example, then if we can group the securities in the benchmark by market cap, they would align. Nothing really mysterious here.
A second important point: unless the manager is MANAGING the mutual fund, we do not drill down to the security level, when it comes to evaluating the manager's performance, since he/she did not pick the underlying securities.