DEFINITION of 'Investment Style'
The overarching strategy or theory used by either a retail investor or an institutional money manager to set asset allocation and choose individual securities for investment. The investment style of a fund helps set expectations for long-term performance potential and aids in advertising the fund to investors looking for a specific type of market exposure.
BREAKING DOWN 'Investment Style'
Most mutual funds and exchange-traded funds (ETFs) employ a consistent investment style. An investment style can be broadly drawn, such as "international bonds", or finely tuned, such as "mid-cap value stocks that pay steady income".
With the majority of mutual funds and ETFs, managers are limited by their prospectus as to what kind of securities they may own. The portfolio managers of a healthcare fund, for example, must be invested in only healthcare-related companies, even if they don't feel the sector is a good place to be.
No one investment style is inherently better than another; the key is to find a style that suits an investor's appetite for risk while remaining a sufficient level of diversification.