Sector/quality effect evaluates what aspect of investment strategy?

The sector/quality effect primarily evaluates the ability to select appropriate issuing sectors and quality groups. This concept is crucial for investment strategy, as it emphasizes how well an investor can identify sectors and securities that are likely to outperform based on their inherent characteristics and economic conditions.

When analyzing investments, the ability to choose the right sectors and qualities affects overall portfolio performance significantly. Certain sectors may perform better in various economic cycles or environments, and within those sectors, the quality of the issuing companies (e.g., their creditworthiness, stability, and market position) can further influence returns.

By focusing on selecting the right sectors and high-quality issuers, investors can potentially enhance their returns and mitigate risks associated with broader market movements. This approach aligns with the principles of active management, where the aim is to capitalize on sector rotations and quality differentiation to outperform benchmark indices.