Portfolio Style Drift Check with StyleCheck

About Mutual Fund Style Drift

What is "Style Drift"?

Style Drift is a change over time in a mutual fund from its stated investment style or objective.

What causes "Style Drift"?

This "change" or "drift" can be caused by many factors like a change in the fund manager, a change in the fund's objectives or as a result of decisions made by the fund's management.

It can also be the result of investing in areas that are "riskier" than the fund would normally invest in. The fund manager then dumps those risky holdings prior to their quarterly required filing date, so that those holdings are not reported to the shareholders or the general public. Now "why" would a fund manager want to do that? Because they want to beat their "peers" and beat their "competitors" and achieve higher performance than their fund's benchmark index.

How can you tell if a Mutual Fund exhibits "Style Drift"?

You can tell by analyzing the performance characteristics of the mutual fund vs. a set of "indexes". You are essentially trying to determine which index is the mutual fund's "best fit" by using Returns-Based Style Analysis (RBSA). You can compare the mutual fund against a list of indexes and record which indexes are most correlated with the mutual fund, as well as the mathematical characteristics of that comparison (i.e. alpha, beta, r-squared, and the correlation coefficient). Even further, if you track the "change of those correlations over time" then you can see how the mutual fund is changing it's performance characteristics and style over time.

Our software will tell you whether the fund manager is "drifting" into other asset classes than what you expect. Without this info, your portfolios are assuming more and different risk that what you thought. The software also will show you whether the fund's "best fit index" is changing over time, another indicator of the manager "style drifting".

You can analyze individual mutual funds, or an entire portfolio of mutual funds to check the style drift of the portfolio's asset allocation.



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