Performance Attribution: Are Sector Fund Managers Superior Stock Selectors?
Abstract
Do equity sector fund managers outperform diversified equity fund managers? This paper examines this question during 2000-2009 by formulating simulated portfolios of Fidelity Select Sector Funds with weights similar to the sector weightings of actual multi-sector equity fund portfolios. The returns of the simulated portfolios were then netted against the actual portfolios to determine which outperforms. The results indicate that Sector Fund managers have superior stock selection ability, with one notable exception: the small-cap value investment style. Small-cap value multi-sector equity fund managers outperformed the simulated portfolios, indicating superior stock selection ability by fund managers in that category. Although this study does not adjust for risk using traditional measures, the results are expressed using a metric that risk-averse investors care about: the percentage of time the net returns are positive, which is found to be well in excess of 50%.