One issue that's a common source of confusion is the difference between the Morningstar Style Box and Morningstar categories. If you look at Columbia Value and Restructuring (UMBIX), for example, you can see that its quote page shows that it currently occupies the large-blend section of the style box, yet we have it in the large-value category. Why the discrepancy? Why don't we move the fund to the large-blend category, if that's where the style box says it belongs?
Those are good questions, and they go to the heart of the different goals of the style box and the fund categories. Essentially, the style box is meant to be a snapshot of a fund's portfolio at a specific moment in time, while a fund's category is intended to be a stable peer group with which it can be compared over the long term. The two will usually correspond, at least when we're dealing with the nine style box categories such as large value and large blend. But they can sometimes get out of sync temporarily, and that's especially true in an extremely volatile market like we've seen over the past year.
Style Boxes and Categories: The Nitty-Gritty
To understand how such discrepancies happen and what they mean, it helps to understand the mechanics of the style box. For stocks and stock funds, which are our main focus here, the vertical axis of the style box represents size, from large caps at the top to small caps at the bottom, while the horizontal axis represents a continuum from value (on the left) to growth (on the right). Each stock gets a size score based on its market capitalization and a style score based on a combination of five valuation measures and five growth measures. (For more on how these scores are calculated, see the style box fact sheet.) These two scores can be used to plot where each stock lands in the style box. Google (GOOG), for example, lands in the large-growth square, while Pfizer (PFE) lands in the large-value square.
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David Kathman does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.