Tracking Funds as They Migrate Across the Style Box
Big shifts from Fidelity Dividend Growth and Fairholme.
The Morningstar Style Box has a lot of stories to tell.
We can shade in the section of the style box where a fund's current portfolio has most of its holdings. We can also draw an amoebalike Morningstar Ownership Zone that encompasses most of the portfolio and typically sprawls across two or three of the sections. This nicely illustrates the true stretch of a fund and the fact that very few funds stick to just one of the nine boxes. Or we can plot a centroid for a fund's portfolio and then track where it moves (snail-trail style) across the style box. This tells you the story of where a fund has moved over time.
It's this centroid movement that we'll look at here. Funds with big centroid movements often have undergone a strategy shift. Other times, it's simply a manager moving in the direction of what he or she thinks are better opportunities. Finally, it can even be that the market itself moves and the fund hasn't changed holdings. Remember, these are all relative measures, so if a fund favors health-care stocks and health-care stocks rally to higher valuations, then the fund would likely move farther to the right of the style box even without making any trades.
Russel Kinnel has a position in the following securities mentioned above: JENSX, RYSEX. Find out about Morningstar’s editorial policies.