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 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).
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