How to Make the Most of the Morningstar Style Box
There's a lot of useful information there if you know where to look.
Since we introduced the Morningstar Style Box for mutual funds in 1992, it has become a standard way for fund companies, advisors, and individual investors to categorize mutual funds. It's intended as a handy visual summary; by knowing where a fund lands in the nine-square style box, you can tell quite a bit about how a fund manager tends to invest and where a given fund might fit into a portfolio.
However, it's important to remember that the style box is just a summary. It has its limitations like any tool, but if you know where to look, it's possible to find quite a bit of useful information to supplement what a fund's style box tells you. Specifically, a fund's centroid and Morningstar Ownership Zone allow you to pinpoint its characteristics much more precisely and compare them with those of similar funds.
Style Boxes and Categories
Before we get into the details, it will be helpful to establish just what the style box is and what it isn't. It's meant as a snapshot of a fund's portfolio at a given moment in time, showing the types of securities that the fund actually owns. (This column by Christine Benz provides a good overview of some common style-box misconceptions.) For stock funds, the style box represents the portfolio's style (value, blend, or growth) and the median size of its holdings (large-, mid-, or small-cap); for bond funds, it represents duration, or interest-rate sensitivity (short, medium, or long), and credit quality (high, mid, or low).
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.