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Buy Stock-Pickers, Avoid Sector-Pickers

Separating skill from luck with manager attribution.

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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.