Zephyr's StyleADVISOR is used by investment professionals throughout the world to analyze investment managers, mutual funds, financial markets and investment portfolios. Hundreds of companies with thousands of users utilize Zephyr software to help create better client and prospect presentations that give them a competitive advantage and also to assist companies in gaining a better understanding of their investment management process.

What can I do with StyleADVISOR?
StyleADVISOR is a great tool for creating client reports, performing due diligence, building portfolios or searching for managers. StyleADVISOR’s graphs and tables allow you to perform style, risk, performance and peer group analysis on managers and custom blends. The StyleADVISOR suite of software also includes our asset allocation software AllocationADVISOR. Use the links to the right or below for more information or to see sample graphics from StyleADVISOR and AllocationADVISOR.

Manager Analysis. Manager analysis begins with style. StyleADVISOR uses returns- based style analysis to quickly determine managers’ investment style and create a unique style benchmark for evaluating manager performance. StyleADVISOR also measures risk, relative performance to a peer group and attribution.

Reports and Presentations. StyleADVISOR is renowned for the quality of its reports. Unique to StyleADVISOR is the ability to build a custom report while viewing the end result. This unique process helps even a casual user build highly professional, quality reports in a minimum of time. Exporting, linking, and printing graphs and tables to Word, Excel, PowerPoint or Acrobat is simple and easy.

Manager Search. StyleADVISOR screens through thousands of managers quickly and efficiently. Search for managers with consistent style, managers with good risk return characteristics, or managers that are highly correlated to a benchmark or other manager. Search across separate accounts, mutual funds and indexes on over 50 statistics.

Portfolio & Market Analysis. StyleADVISOR users can create custom blends of managers and/or indexes to perform style, performance, risk and peer group analysis on portfolios of managers. You can also use StyleADVISOR’s powerful calculations to evaluate markets.

Asset Allocation. AllocationADVISOR is a powerful asset allocation and financial planning software tool. AllocationADVISOR helps investors create portfolios that maximize return for a given level of risk. Investors can also create wealth projections in AllocationADVISOR using Monte Carlo Simulation.

What is Returns-Based Style Analysis?
Nobel Laureate William F. Sharpe developed returns-based style analysis in 1988. This methodology has revolutionized the way investment professionals analyze managers. Why? Because it makes it possible to analyze a manager's style and performance using historical returns without the difficult and costly process of collecting and analyzing past and current portfolio holdings.

In 1994, Zephyr Associates, Inc. led the industry by introducing StyleADVISOR, the first commercially available software to implement returns-based style analysis. Over 500 institutions use StyleADVISOR today.

Who Uses StyleADVISOR?
Managers, consultants, plan sponsors, financial advisors and financial planners use StyleADVISOR for reporting and analytics.

What is included with StyleADVISOR?
The Zephyr software package includes StyleADVISOR, AllocationADVISOR (an asset allocation program), unlimited support, Zephyr’s consulting services and index, manager and mutual fund data.

Manager Analysis

StyleADVISOR gives users the ability to perform sophisticated analysis that gets to the heart of a manager’s style, performance and risk profile.

Style Analysis. Investment style is fundamental for creating investment portfolios and evaluating a manager’s performance. StyleADVISOR uses returns-based style analysis to determine a manager’s investment style and to test for style consistency. StyleADVISOR is the only available software package that uses a quantitative measure of style drift.

Risk. StyleADVISOR has unique functions to evaluate risk, including dispersion and downside measures, which can be displayed on graphs or tables.

Peer Groups. StyleADVISOR includes a powerful capability to quickly create and display peer group comparisons versus a custom peer group or one of Zephyr’s Universes for over 25 statistics.

Attribution. Using StyleADVISOR’s returns-based style analysis, one can get a very good idea of whether a manager’s alpha is from stock selection, sector bets or market timing.

Style Analysis

Determining a manager’s investment style is a key part of creating a portfolio of managers, and is fundamental for evaluating a manager’s performance. StyleADVISOR uses returns-based style analysis to quickly ascertain a manager’s style and creates a unique style benchmark that reflects that style. Here we look at four different calculations of style: Manager Style, Style History, Style Drift and Daily Style.

For a more in-depth look at manager style and how it is calculated, see our article in the Concepts section on Style Analysis.

Manager Style

StyleADVISOR’s Manager Style graph provides an accurate view of a manager’s style in an easy-to-read graph. The Manager Style graph below plots the style of a domestic equity manager versus the Russell style indices.

StyleADVISOR is highly customizable, allowing the user to select the inputs and how the output should be displayed. Other possible style analyses include international equity (like the graph below), fixed income, international fixed income, sectors, regions, etc. You can also view multiple managers or a universe of thousands on StyleADVISOR’s graphs.

Style History

A manager’s style history, and the consistency with which a manager has stayed within a specific style, gives an investor a lot of information about how that manager might fit into a larger portfolio. Plan sponsors and consultants, for example, generally prefer style consistent managers because they feel they can project with more certainty the manager’s future style.

The two graphs below show how the manager’s style has changed over time. In the top Manager Style graph, each symbol represents the manager's style for a 36-month time period with the symbols getting larger over time. The bottom Asset Allocation graph shows the manager style plotted over time. The graph is color coded for each of the indices used.

All of StyleADVISOR’s graphs can plot any number of managers. The graph below shows the style history of four different managers.

Style Drift

StyleADVISOR is the only software package that includes the first quantitative measure of style drift, the Zephyr Style Drift Score. This statistic can be used to screen managers, to compare the style consistency of managers, and to monitor the drift in a manager’s style.

Daily Analysis

Until recently, most manager analysis used either monthly or quarterly data. This is fine for historical style and performance analysis, but is slow to detect manager style changes. Zephyr can provide users with daily total return data for mutual funds and almost 1,000 indexes. The use of daily data helps users identify shifts in style more quickly.

A rolling 90-day window detects manager style changes much sooner than a 36-month or 20-quarter window. The image above shows a style history of the Lord Abbett Growth Opportunities fund. This fund shifted from small to mid value to small growth over the three year period ending July 31, 2000. The yellow on the asset allocation graph is the small cap growth index. Notice that the daily analysis (top graphs) shows this shift more than six months before the monthly analysis (bottom graphs).

Performance Analysis

StyleADVISOR calculates performance versus both a user-selected benchmark (like the S&P 500) and a unique style benchmark created by StyleADVISOR for each manager. The style benchmark is an excellent performance benchmark because it isolates performance achieved due to the manager’s skill. Here we look at several different StyleADVISOR graphs and tables which evaluate performance, including Manager Performance, Excess Return, Manager vs Benchmark, Calendar Year Returns, Periodic Returns and Custom Graphs.

For a more in-depth look at benchmarking, please see our article in the Concepts section on Benchmarks.

Manager Performance

One way to measure manager performance is by looking at how an initial investment would have grown over a specific time period. StyleADVISOR’s Manager Performance graph shows the growth of a dollar for the manager, custom style benchmark, and selected market benchmark. The shaded area at the bottom represents the manager’s cumulative excess return over the style benchmark, which is a good measure of the manager's skill.

Tables can be used in StyleADVISOR on their own, or as a way of reinforcing what is being shown on the graph. All of StyleADVISOR’s tables can be customized to display the desired combination of statistics.

Excess Return

The information ratio, which is the ratio of excess return to standard deviation of excess return (or tracking error), is a measure of a manager’s skill and the consistency with which the manager has been able to outperform. StyleADVISOR includes this important statistic in both tables and graphs.

These charts are a great way to compare the consistency of managers’ performance. The rolling window graph below, for example, highlights the difference between active managers (blue and green) and the index fund (red).

The rolling window graph is also helpful for detecting structural changes in a portfolio. A risk control process that was initiated by a manager several years ago, for example, would probably lower the portfolio's tracking error. As a result, the symbols would shift to the left as they do for Active Manager A (blue).

Manager versus Benchmark

StyleADVISOR automatically calculates over 25 statistics every time an analysis is created. These statistics are available with a click of the mouse on the Manager vs. Benchmark graph and tables. The user can select to view rolling windows or cumulative statistics, or select a bar chart and choose the time periods displayed.

Calendar Year Return

StyleADVISOR’s Calendar Year Return graph and table show the managers’ return for the current year (YTD), various calendar years, the time period that all the managers have in common, and the time since inception.

Periodic Returns

You can keep tabs on the performance of managers and benchmarks by viewing monthly, quarterly and yearly total returns and/or excess returns in StyleADVISOR.

Custom Graphs

StyleADVISOR’s graphs and tables encompass most combinations of statistics used by investors. Occasionally, however, a user is interested in creating a more unusual combination on a graph. StyleADVISOR’s Custom Graph allows users to simply right click on the graph and select from over 50 statistics to plot on the horizontal and vertical axes.

The example below shows five large growth funds. The excess return vs. the market benchmark is plotted on the vertical axis and the batting average vs. the market benchmark (the percentage of months the manager beat the benchmark) is on the horizontal axis. This can be shown for a single period or for rolling time periods.

The user can also select time for the horizontal axis so that any of the 50 statistics can be looked at on a rolling basis over a period of time. The bottom graph here shows the manager's alpha vs. the market benchmark for rolling 36-month periods.

Risk Analysis

Investors are often interested in a manager’s risk as related to performance. How was performance achieved? Was the manager rewarded for risk taken? As a result, many of StyleADVISOR’s graphs and tables show performance and risk together. StyleADVISOR offers a variety of risk measures, allowing users to create a complete risk profile for managers. Here we look at StyleADVISOR’s Risk Return and Upside Downside Graphs.

Risk versus Return

StyleADVISOR’s Risk Return graph displays standard deviation, beta or tracking error as the risk statistic. Users can select the measure that they deem most important, or all three risk statistics can be used side-by-side to get a better feel for the risk of the manager.

Upside / Downside

One very intuitive way of measuring risk is looking at how much a manager falls when the market makes a down move (the downside capture) and the amount a manager goes up in an up market (the upside capture). StyleADVISOR's unique Upside/Downside Market Capture shows this information in easy-to-read graph and tables.

A manager who goes up more than the benchmark in an up market plots above the horizontal line. A manager that goes down less than the benchmark in a down market plots to the left of the vertical line.

Peer Group Analysis

StyleADVISOR gives users the ability to compare managers to a peer group on more than 25 statistics. In addition, a peer group can be displayed on many of StyleADVISOR’s graphs.

For more information about comparing a manager to a group of peers, please see our article in the Concepts section on Peer Group Analysis.

Universe Graph and Table

Zephyr's unique Manager vs. Universe graph plots the manager's rank (where the manager falls if the managers are put in order highest to lowest) on one of more than 25 statistics in a universe of similar style managers.

We believe that the rank universe graph below is clearly superior to the standard floating bar graph, which shows where a manager falls in a universe for only a few discreet time periods (One year, three year, five year, etc). Here we can see where a manager ranks for every single month or quarter.

This graph can be altered to show the actual return (or other statistic) on the vertical axis instead of rank.

StyleADVISOR also allows you to create a typical floating bar chart for your peer group analysis.

Showing the Universe on Other Graphs

Most StyleADVISOR graphs give users the option to display all of the managers in the selected universe. For these graphs, the universe managers are displayed as small black dots.

Attribution Analysis

To what do we attribute a manager’s performance? Is it stock picking, investing in the right style, or market timing? Were certain sectors over or underweighted?

These are the questions that attribution analysis attempts to answer. To answer these questions for short time periods, such as a day, a week, a month or a quarter, requires a sophisticated process that must identify and price each security in the portfolio at least daily (some even argue that this should be done intra-day at the time of any transaction). This kind of attribution analysis is costly and time consuming and is only practical for separately managed institutional portfolios. It is possible to do a more general attribution analysis using returns-based style analysis on any portfolio, like mutual funds, for which monthly or quarterly returns are available.

Most of a manager’s returns are attributed to asset class returns. A US equity manager’s returns depend mostly on how well the US stock market does. The second most important factor for an equity manager is investment style. Most growth stock managers perform “well” when growth stocks are in favor. Conversely they perform “badly” when growth stocks are out of favor. Our first goal is to find out how much of the manager’s return comes from the general market and investment style. We accomplish this using a technique called style analysis.

Let’s work through an example. Using only the monthly returns for The Needham Growth Fund and the monthly returns from the four Russell style indices and T-Bills, we find the combination of indices that best describes Needham’s behavior/style. This combination is shown in Figure 1. In Figure 2 the red portion of the pie chart shows that these indices account for 77.5% of the variance in Needham’s return. The variance of Needham’s return that can’t be explained by the market and style is represented by the green portion of the pie. This residual variance or behavior is likely due to the manager’s stock selection or sector bets.

Figure 1

Figure 2

The portion of the manager’s returns that are explained by exposures to the style indices could be passively replicated by buying the appropriate percentages of index funds or ETFs that represent the style indices. The manager’s alpha is generated by the portion of the fund that we cannot passively replicate. This represents the manager’s active bets. They could be stock bets, sector bets, or even market timing bets. In an attempt to identify these sources of returns, we start by constructing a custom benchmark called a style benchmark that is based on the index weights in Figure 1. The performance graph and table (Figure 3) show that Needham beat its custom style benchmark by an annualized 16.92%. This is the excess return Needham achieved over what we could passively construct to represent Needham’s investment style. This is the result of either manager skill or luck. For now we assume manager skill.

Figure 3

Should Needham’s excess return be attributed to stock selection, sector weightings, and/or market timing? To see the impact of sector bets we perform another style analysis using sector indices rather than style indices. Because we are using returns and a rolling window we don’t expect to precisely identify the sector weights at any specific time but rather get an idea of what the sector exposures have been over the life of the fund and how they have changed over time.¹

Figure 4

Figure 4 above contains the results of the sector analysis, which shows that Needham is heavily weighted in technology, health care, and T-Bills. T-Bills represent cash or anything that makes the portfolio behave like cash. Based on the Needham Fund's prospectus the fund is run somewhat like a hedge fund. It shorts stocks and uses derivatives to reduce risk. Once again, using the exposure to the indices used in the style analysis, we construct a custom style benchmark. Figure 5 below shows that Needham outperforms this benchmark by 13.84% annualized. So of the 16.92% outperformance, about 3% is from their sector bets. The balance, 13.8%, is the result of either stock selection or market timing.

Figure 5

Market timing doesn’t necessarily mean moving from 100% stocks to 100% cash. It can be as subtle as buying low beta stocks when one perceives the market is over valued. It could also be a value manager building cash because he can’t find good valuations.

Figure 6

One way to evaluate the results of market timing is to see how managers do in both up and down markets. To do this Zephyr developed an Upside/Downside Market Capture Analysis. If a manager goes up more than the benchmark when the benchmark goes up, the manager plots above the horizontal line in Figure 6 above. If a manager goes down more than the benchmark when the benchmark goes down, he plots to the right of the vertical line. If the manager goes down less he plots to the left of the vertical line.

Aggressive managers who go up more and down more plot in the northeast quadrant. Defensive managers who go up less and down less plot in the southwest corner. Managers that go up more and down less, as is the case with Needham, plot in the northwest quadrant. We believe that this is the result of good market timing particularly if there is a consistent pattern of such behavior, as seen in Figure 7 below. Managers with bad market timing that go up less and down more fall into the southeast quadrant. Needham went up 26% more than the benchmark when the benchmark had a positive return. When the benchmark went down the fund declined about 22% less.

Figure 7

Using returns based style analysis with a tool like Zephyr StyleADVISOR, one can get a very good idea of whether a manager’s alpha is from stock selection, sector bets or market timing.

End Notes:

¹The whole concept of sector exposure is imprecise even when done daily with a securities based system. Broad economic sectors are made up of industry groups that can often be as disparate as the sectors themselves. Every index provider creates different sectors. S&P Citigroup’s are different from Russell’s, which are different from Morningstar’s etc. Then you have the problem of how stocks get assigned to an industry and sector. Is General Electric an industrial, health care, aerospace, or finance company? How many other companies have businesses in multiple sectors?

Reports and Presentations

StyleADVISOR’s report and presentation creation makes it easy for users to share sophisticated information with others in an easy-to-read, attractive format.

Custom Reports

Powerful Graphic Editing

Export to PDF or Microsoft Office

Custom Reports

StyleADVISOR’s workbook format, patent-pending page design and powerful graphic editing allow users to create reports while viewing the end result. Once created, reports can be updated and exported automatically. Here we look at StyleADVISOR’s Workbook Format, Page Design, Graphic Editing and Exporting.

Workbook Format

All analyses in StyleADVISOR are organized into workbooks much like those used in Excel. Each page in a workbook is organized and designed by the user, and a workbook can contain any number of pages.

Workbook templates are a great starting point for StyleADVISOR analyses. Users can create their own templates for future use or to share with colleagues. Zephyr has also created a number of templates for our users.

Click on the image below and a larger image will open in a separate window. Then click on the tabs to page through the workbook.

Page Design

A page in a StyleADVISOR workbook may contain just one graph, or may be designed as an entire presentation or report. Zephyr’s patent-pending page splitter gives users complete control over the look and feel of each page in an analysis. Users start with a blank page and a Gallery of all of StyleADVISOR’s graphs and tables on the left. The page is sliced up any way using the cursor. Charts can be placed in the sections of the page by dragging and dropping them from the Gallery.

StyleADVISOR users can select unique inputs for each chart on a page with a simple right click. This gives users the flexibility to display any combination of managers, universes, time periods, etc. all on one page or in one workbook.

Click on the images below for a larger view of these sample page layouts.

Graphic Editing

There is a full-featured, easy-to-use graphics editing program built right into StyleADVISOR so there is no need to export graphs to other programs to make them look good. You can change fonts, colors, backgrounds, symbols, etc. without ever leaving StyleADVISOR.

Once you have created a workbook and customized it to look the way you want, you can save it as a template and use it for any future analyses.

Once you have created a workbook and customized it to look the way you want, you can save it as a template and use it for any future analyses.

StyleADVISOR’s dynamic text tool allows users to create titles and other text that update when the analysis is updated. The name of the manager and the dates on this cover page, for example, automatically update with changes to the analysis.

Exporting to Other Programs

StyleADVISOR makes the often time-consuming job of exporting and updating reports and presentations simple and efficient. You can export your entire StyleADVISOR workbook into a PDF (Adobe Acrobat) or PowerPoint presentation with the click of the mouse. Or, you can incorporate parts of multiple StyleADVISOR analyses into an existing PowerPoint presentation, telling StyleADVISOR exactly where to place the graphics.

StyleADVISOR takes report generation one step further by allowing you to update StyleADVISOR graphics in multiple PowerPoint presentations in one simple step. Just double-click an icon on your desktop to update all of your quarterly reports with the latest data.

Data

Zephyr provides access to a great deal of data for use with our software. Data is updated by downloading executable files (or zipped files) from our website. In addition, the Zephyr software suite includes a utility which allows you to import returns data from Excel into StyleADVISOR and AllocationADVISOR.

A subscription to StyleADVISOR includes monthly total returns for more than 12,000 indexes, monthly returns for mutual funds, and quarterly separate account manager total returns. Zephyr also provides an extensive range of optional databases.

Indexes. StyleADVISOR includes monthly total returns data for over 12,000 indexes. We have included a general overview of the indexes available below. For questions about the availability of particular indexes, please call 800-789-5323 or email sales@styleadvisor.com.

Domestic Style and Equity Indexes from Dow Jones, Oakbrook, Russell, S&P, S&P/BARRA, Salomon Smith Barney and Wilshire.

Global Equity, Style and Sector Indexes from Dow Jones, IIA, Morgan Stanley Capital International, Parametric, Salomon Smith Barney and Surz.

Emerging Markets Indexes from the MSCI and S & P Emerging Markets Database (formerly the International Finance Corporation Indexes).

Canadian Indexes from BARRA, Nesbitt Burns, and TSE.

Domestic Fixed Income Indexes from Lehman Brothers, Merrill Lynch and Salomon Smith Barney.

Global Fixed Income Indexes from MSCI, Lehman Brothers and Salomon Smith Barney.

Hedge Fund Indexes from Hedge Fund Research, Hennessee, hedgefund.net, Barclays, and CSFB.

Economic Indicators for market research.

Mutual Funds. In addition to the data that is included with StyleADVISOR and AllocationADVISOR, Zephyr can provide data on Closed End Mutual Funds, Canadian Mutual Funds from Fundata and Lipper Mutual Fund Data.

Separate Account Managers. In addition to the quarterly database included with StyleADVISOR and AllocationADVISOR, monthly total returns for separate account composites are available from PSN, Nelson’s and eVestment Alliance.

Long Term Indexes. A database of 10 stock and bond indexes going back to 1921 provided by Global Financial Data, Inc updated monthly. Using the US T-Bills, we create risk premium time series for the other 9 indexes.

Hedge funds. Monthly hedge fund data is available from hedgefund.net, Barclay’s and Hedge Fund Research.

Variable Annuities. Monthly total returns for over 20,000 variable annuity/life products from Morningstar.

Stocks. Monthly total returns for over 7,000 stocks from Zacks.

Offshore Data. A database of offshore funds from Lipper.

Daily Data. Daily mutual fund data and index data.

Manager Search

StyleADVISOR can perform searches across thousands of managers from different databases. For each manager selected for your search, over 50 statistics are calculated and presented in linked graphs and tables. In addition, “qualitative” statistics can be used to sort and filter managers.

The Search graphs allow you to select the managers that fit your search criteria. Multiple graphs with different statistics and over different time periods are linked together so that you can see the progression of your search.

The search graphs are also linked to a table that shows the manager name and all of the statistics and qualitative facts.

With a few clicks of the mouse, you can automatically build a workbook (style map, risk return, etc.) for the highlighted managers.

Portfolio and Market Analysis

StyleADVISOR is a sophisticated tool that goes beyond manager analysis. StyleADVISOR is used to construct and evaluate portfolios of managers, evaluate alternative investments such as hedge funds, and research market trends and movements.

Analyze Custom Portfolios

Measure Portfolio Diversification

Evaluate Hedge Funds

Research Financial Markets

Analyzing Investment Portfolios

StyleADVISOR is a powerful tool for creating and analyzing investment portfolios. StyleADVISOR includes data on indices, mutual funds and separate account managers. Additional databases are available for stocks, hedge funds, variable annuities, closed end funds, exchange traded funds and offshore funds. All of this data can be blended together in StyleADVISOR to create portfolios. These portfolios can be evaluated using all of StyleADVISOR’s powerful analytics.

The hypothetical example below shows a current portfolio versus a suggested portfolio. StyleADVISOR’s graphics make it easy to highlight the advantages to making changes to this portfolio.

Correlations

Is your portfolio really diversified? Check StyleADVISOR’s Correlation Matrix to see how different managers are correlated to each other, or to a set of indices.

How has the correlation of the managers to the benchmark changed over time? The graph below shows the correlation of the managers to the benchmark (in this case the S&P 500) for rolling 20 quarter periods.

Does your portfolio contain multiple managers from within the same style? This allows you to diversify across manager skill. To achieve effective diversification, the excess returns of these managers over the benchmark should be low. StyleADVISOR’s Correlation Matrix also allows you to display Excess Returns, as seen below.

Analyzing Hedge Funds

Some of StyleADVISOR’s analytics are particularly useful when looking at Hedge Fund managers and Fund of Funds. For a more detailed presentation you can download a workbook for use in StyleADVISOR, or a PDF of this workbook.

This first graph plots two fund of funds Maximum Drawdown versus the S&P 500. This is the maximum loss that the managers ever incurred during any subperiod of the entire time period.

The Downside Table below shows some of the risk related statistics of the two fund of funds and the S&P 500 for comparison.

Performance can be graphed versus stocks, in this case the S&P 500, or versus bonds, using the Lehman Aggregate Bond index. A table can be used to show any of the numerous statistics for making comparisons.

Market Analysis

The same powerful Zephyr analytics which are used for evaluating managers can also be used for investigating markets. The graphs below show which markets have outperformed, and over which time periods. We often create workbooks with new and innovative ways to use StyleADVISOR. These workbooks are posted on our website in the Workbooks section and are available to all StyleADVISOR clients.

This set of graphs shows how a sector, in this case technology, has performed relative to the market. The smaller graphs show how each of the sub-sectors have performed relative to technology. This kind of analysis can be performed for other sectors, or for international regions and countries.