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.)
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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.)
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| Figure 1 |
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| Figure 2 |
Return to the Main Menu.
Next: Fund I-Q Number 1: Investing Style »
Table of Contents
- Mutual Fund Categories
- Mutual Fund Style Box
- Fund I-Q Number 1: Investing Style
- Scoring Investment Style Data
by
Richard Loth
Richard Loth has more than three decades of international experience in banking (Citibank, Industrial National Bank, and Bank of Montreal), corporate financial consulting, and non-profit development assistance programs. During the past 12 years, he has been a registered investment adviser and a published author of books and publications on investing. Currently, he devotes his professional activities to educational endeavors, writing and lecturing, aimed at helping individual investors improve their investing know-how (see www.lothinvest.com)
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