What it means
Fund names can be vague, so the style box was created to show what is inside. Size is based on market capitalisation, which is the total value of a company's shares.
Style describes whether the shares look cheap relative to their earnings and assets, which is value, or are expected to grow fast, which is growth, with blend sitting in the middle. The grid was popularised by the research firm Morningstar, and many other providers use similar versions.
A fund that holds large, fast-growing technology companies would land in the large growth box, while one that holds small, inexpensive industrial firms would sit in small value. Funds are placed according to the weighted average of their holdings.
Investors use the style box to build balanced portfolios. If all of a person's funds sit in the same box, they are less diversified than they think, because those holdings tend to rise and fall together.
Spreading funds across different boxes can reduce the risk that one style falling out of favour hurts the whole portfolio. There is also a version for bond funds.
In it, one axis shows credit quality, from high to low, and the other shows interest rate sensitivity, from short to long. This lets a bond investor see at a glance whether a fund holds safe, short-term government debt or riskier, longer-term corporate debt.
The style box is a snapshot and has limits. A fund's position can change as holdings are bought and sold, and the classification depends on rules set by the provider.
Two providers may place the same fund in different boxes, so the grid is a guide and not a guarantee. For non-specialists, the style box is a practical check against surprises.
If you think you own a conservative fund but it appears in the growth column, you should find out why before you invest.
In practice
Real-world examples.
Example
A retail investor owns four equity funds and plots each on a style box. She finds all four sit in large growth, so she is far less diversified than she believed. She replaces one with a small value fund to spread her risk.
Example
A financial adviser reviews a client's pension fund and sees that it has drifted from the large blend box into mid growth after a rally in smaller companies. He recommends rebalancing to restore the original mix. The change is recorded in the investment review.
Example
A pension trustee compares a bond fund's position on the fixed income style box with the scheme's policy. The fund sits in the long-term, low credit quality box, which is riskier than the policy allows. The trustees ask the manager to explain.
Formula
Calculation
Weight in a box = value of holdings in that box / total value of the portfolio
Suppose a $1,000,000 portfolio is placed as follows: $400,000 in large growth, $200,000 in large blend, $150,000 in large value, $100,000 in mid growth, $50,000 in mid blend, $50,000 in mid value and $50,000 in small growth. The weights are 40%, 20%, 15%, 10%, 5%, 5% and 5%, which add to 100%. Large-company holdings total 40% + 20% + 15% = 75%, and growth holdings total 40% + 10% + 5% = 55%. The portfolio therefore leans towards large growth shares.Case study
Seen in the real world.
Silverlake Pensions is an illustrative, fictional scheme whose trustees believed they held a balanced equity portfolio across five funds. A new investment consultant mapped the funds on a style box and found that 80% of the money sat in the large growth box.
When a growth stock sell-off caused the scheme's equity holdings to fall by 18%, trustees realised that their funds had all behaved the same way. The consultant proposed moving $20,000,000 from large growth into large value and small value funds.
Over the following years the scheme's returns became less dependent on a single style, and the swings were smaller. The illustrative lesson is that a style box can reveal concentration that fund names hide.
Watch out
Common mistakes.
- Assuming that a fund with a balanced-sounding name sits in the middle of the grid, when its holdings may be concentrated in one box.
- Treating the placement as fixed, when it can change as the manager trades and as company values move.
- Believing that different providers classify funds identically, when each uses its own rules.
Questions
People also ask.
What does the style box show?
It shows the size of companies a fund holds and whether its approach is value, growth or a blend of the two.
How is it used in portfolio building?
Investors compare their funds across the grid to avoid concentration in a single style and to diversify between sizes and approaches.
Is there a style box for bonds?
Yes, a version for fixed income funds shows credit quality on one axis and interest rate sensitivity on the other.
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