So, how can we explain the superior performance of strategies that account for predictable manager skills? The answer lies in examining inter- and intraindustry asset allocation effects. Specifically, we compute, for each investment month and for each strategy considered, industry-level and industry-adjusted demonstrate that, for a strategy that incorporates manager skill predictability, these industry-level returns are 2–4%/year higher than those of a passive strategy that merely holds the time-series average industry allocation of that same strategy. In contrast, such industry timing performance is virtually nonexistent for the other competing strategies that do not account for predictable manager skills. .
