Style Drift

AAA

DEFINITION of 'Style Drift'

The divergence of a mutual fund from its stated investment style or objective. Style drift occurs as a result of intentional portfolio investing decisions by management, a change of the fund's management or, in the case of stocks, a company's growth.

INVESTOPEDIA EXPLAINS 'Style Drift'

Generally, a portfolio manager's ability and commitment to managing a fund's assets according to its stated investment style over the course of several years is a positive investment quality. For obvious reasons, consistency in this particular area is preferable to style drift. Managers chasing performance have been known to resort to using different strategies, which are often counterproductive and can change the risk-return profile of the fund.

Nevertheless, fund investors need to exercise some flexibility in making judgments of a fund's investment style stability. Some funds allow for a "go-anywhere" style, which means that the manager will do just that. Also, it is not unusual for small cap and mid cap companies to grow in size, which means that a fund may shift capitalization categories accordingly. Circumstances can justify giving the fund manager some leeway. As such, a history of consistent, above average total returns should override any concerns about style drift.

RELATED TERMS
  1. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  2. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
  3. Style

    The investment approach or objective that a fund manager uses ...
  4. Style Box

    Created by Morningstar, a style box is designed to visually represent ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Style Analysis

    The process of determining what type of investment behavior an ...
RELATED FAQS
  1. How do no-load funds typically perform relative to load funds?

    No-load mutual funds are pooled investments that do not carry an upfront sales charge when purchased or a deferred sales ... Read Full Answer >>
  2. What are the most popular mutual funds that invest primarily in the insurance sector?

    Under the purview of the financial services industry, the insurance sector is an attractive investment option for mutual ... Read Full Answer >>
  3. How should I use portfolio turnover to evaluate a mutual fund?

    The portfolio turnover percentage can be used to determine the extent to which a mutual fund turns over its stocks and assets ... Read Full Answer >>
  4. What are the risks involved in a banker's acceptance?

    College savings accounts are excellent ways to encourage saving for future college costs. Contact your investment professional ... Read Full Answer >>
  5. For what reasons are electronics stocks commonly purchased by a value investor?

    Administered by the Financial Industry Regulatory Authority (FINRA), the Series 6 exam – Investment Company and Variable ... Read Full Answer >>
  6. What is the difference between a modified duration and a Macaulay duration?

    Individuals have a handful of options for places to keep the funds they wish to keep guarded from the volatility and risk ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    8 Reasons To Dump A Mutual Fund

    Buy and hold is not forever. Find out when it pays to sell your fund and move on.
  2. Mutual Funds & ETFs

    Style Drift Can Hurt Mutual Fund Returns

    Small, gradual changes in a portfolio manager's stated strategies can be a big risk for investors.
  3. Mutual Funds & ETFs

    Should You Follow Your Fund Manager?

    Learn how to tell if a fund in flux is still a suitable investment.
  4. Mutual Funds & ETFs

    Which Mutual Fund Style Index Is For You?

    The Russell Investments and MSCI Barra style classification systems can help you pick the right mutual fund - if you know how they work.
  5. Options & Futures

    Mutual Fund Style Drift Not Always A Bad Thing

    Style drift has a bad reputation, but it can be a sign that your fund is thriving.
  6. Mutual Funds & ETFs

    Understanding The Mutual Fund Style Box

    Evaluate your investments with this simple tool.
  7. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  8. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  9. Professionals

    A Look at How the Ultra-Wealthy Invest

    Ultra-wealthy investors are cautious this year as they approach the markets. Many target mutual funds and stocks, but most also diversify their portfolios.
  10. Investing Basics

    What Does Overweight Mean?

    In the investing world, "overweight" refers to an expected stock performance, or a portfolio that is out of balance.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center