Buy Stock-Pickers, Avoid Sector-Pickers
Separating skill from luck with manager attribution.
This article was published in the June 2014 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.
Morningstar analysts often turn to attribution results when digging into a manager's performance. The analysis typically compares a strategy's returns with an index, dividing results between the portion of outperformance attributable to a manager's sector-allocation decisions from the portion that comes from stock-picking results. While the former can often have a big effect on returns--avoiding financials stocks in 2008 has become a go-to example of this--there's much academic and industry research that suggests it is very difficult to consistently make winning market-timing calls.
Janet Yang, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.