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  2. Mutual Fund Style Box
  3. Fund I-Q Number 1: Investing Style
  4. Scoring Investment Style Data

By Richard Loth (Contact | Biography)

This is the entry we need to complete in the Fund Investment-Quality Scorecard for an analysis of a mutual fund's investing style:



When seeking the information needed to complete the scorecard, Morningstar's fund report shows a fund's stated style in the "Master Category" box in the upper right-hand corner of its report. Its take on a fund's current style is disclosed in the "Current Investment Style" section, which also provides a fund style box graphic, value measures and growth measures. Lastly, year-to-year style changes are clearly seen in its multi-year style box graphics at the top of the report.

Value Line's report has its version, which differs from the norm, of a style box that only provides a fund's current categorization.

Making a style drift analysis decision is an empirical exercise. There is no doubt that a consistent investment style over many years is a solid fund investment quality. However, some style drift over an extended period of time is not an unusual occurrence, and should not be viewed too harshly. A fund's investment style behavior should not be looked at in isolation. Investors should also look at turnover, management tenure and total return results. If these investment qualities are positive, some style drift is easily tolerated. In other words, fund style changes are often acceptable when when management delivers the goods. (For more insight, read Don't Panic If your Mutual Fund Is Drifting.)

Lastly, it is worth noting that not all investment qualities are created equal. Of the eight indicators used in the Fund Investment Quality Scorecard, some carry more weight than others. The analogy of a baseball team's batting can be used to illustrate this point. Those batters hitting in positions one to six ("top end") are expected to provide most of a team's runs. Not much offense is expected from those batting in positions seven to nine ("bottom end") in the order.

Similarly, among the factors on the Fund Investment Quality Scorecard, investment style consistency falls more into the bottom rather than the top of the batting order. Of course, style drift should be investigated, but as long as the investment managers produce results, it's OK to be flexible on this mutual fund factor. (See sample Morningstar and Value Line reports.)

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