A Performance Evaluation on Equal Sector Strategy

In this paper, we extended the works done by Conconi, Demidow, Klein and Niu(2013), which examined the equal sector strategy. It was claimed that allocating assets equally into different sectors instead of allocating assets based on market cap weighting would generate more return and outperform the benchmark. We used several performance indicators, including excess return, Jensen’s alpha, Sharpe ratio, Information ratio and Sortino ratio to see whether this strategy would generate alpha in different markets. We found that this allocating-asset-into-sectors-equally strategy was not effective in the US market and emerging markets, but this strategy has generated a statistically significant Jensen’s alpha in EAFE market for the examined time period. Also, we found that by implementing the strategy in some circumstances, it is likely to make portfolio less volatile.