Sector Effects During Elections

The importance of sectors tends to be greater than average during the Novembers when U.S. federal (and especially presidential) elections are held, thus given sector allocation decisions the potential to add or subtract greater value in these months.

Summary

The value of stock selection skill rises when dispersion is high; a larger gap between winners and losers means that active equity managers have a better chance to display their selection abilities. This logic also applies to active managers operating at a higher level of aggregation, for example by expressing tactical market views through sector rotation. The importance of sectors tends to be greater than average during the Novembers when U.S. federal (and especially presidential) elections take place. Sector allocation decisions can add (or subtract) greater value in these months.  British and Canadian data are consistent with the U.S. results.