Mutual Fund Style Box
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Mutual Fund Style Box

Mutual Fund Style Box

By Richard Loth (Contact | Biography)

Several years ago, Morningstar's Don Phillips invented the so-called "style box," which is now widely used as a reference tool for determining the investment objective, or style, followed by a fund's investment managers. The details of these broad category investing strategies were covered in the previous section.

In summary, an equity style box is divided up into nine, equal-sized boxes in tic-tac-toe fashion. In the nine categories used to classify a fund's investment style, this graphic presentation shows where a stock fund's risk-return characteristics place it compared to other funds. The vertical axis classifies risk by three company sizes and the horizontal axis has three investment strategies. In similar fashion, a bond style box reflects a bond mutual fund's risk-return characteristics by using credit quality (vertical axis) and maturity periods (horizontal axis) to indicate a bond fund's investment style.

Mutual fund reports and literature use style boxes to determine a fund's current investment objective and to track its style over extended periods of time. In the following section, we will discuss how investing styles impact a fund's investment quality.

Figures 1 and 2, below, show the style box for stock and bond mutual funds. (To learn more, read Understanding The Style Box.)

Figure 1


Figure 2


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