Harvesting Sector Beta through Broad Sector Indices

Oct 18, 2013

Many investors recognize that a broader mix of stocks, including both developed and emerging markets, and large, mid and small cap ("all cap") segments have provided return, risk, and diversification benefits compared with narrower portfolios. The insights and benefits of working from a global all cap perspective can be extended to sector investing. Some sectors have significant small cap representation, for example, and their inclusion can help rectify some of the biases which can arise from inadvertently underweighting small caps.

Sector-based approaches have caught the attention of institutional investors due to the significant role that sectors and industries have played in driving the cross-section of global equity returns. The various fundamental, style, geographical and performance biases that exist within sectors present both a challenge and a potential opportunity to investors.