| Funds
Research Online |
| A
Free Online Facility for the Review, Selective Identification and Analysis
of Equity Funds |
Style analysis
based on the historic performance of funds, revealing critical
features of fund behaviour and strategy.
This analysis does not offer predictions as to future performance. |
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Style Research Funds Analysis Highlights
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Style
Consistency and/or Style Rotation
The
Style of a fund may have been consistent over time, or an investment manager
may have made Style shifts. Style
Research Funds Research Online identifies how well Style describes the past
performance of a fund and clearly identifies Style consistency and/or Style
shifts.
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In this example, Style accounts for over
90% of the historic returns of the fund; the manager systematically
reduced his exposure to both Large Cap Growth and Large Cap Value as the bull
market ended in early 2000; and, recently, he has sharply increased the
allocation to Small Cap Growth stocks.
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Sources
of Performance
Good
historic performance may have come from getting the Style allocation
correct, or it may have come from good stock selection. Opportune
stock selection can compensate weak Style allocation and conceal
underperforming investment strategy. This example, however, shows a
different situation, with variable past returns and variable stock selection
concealing a strong historic Style strategy.
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In the example the
fund has outperformed its benchmark strongly over the past year but historic
relative returns are more variable. |
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Stock selection has
been a bit variable as well. |
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However,
through its two Style shifts since the late 1990’s, the fund shows consistent
outperformance in Style strategy.
The manager has been successful in Style timing. |
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Key
Features of Risk
It
is important to recognize how fund volatility has changed through time and to
review how the levels of volatility might have changed at market turning
points.
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In the example,
overall volatility appears to have risen but, on closer examination, it is
clear that fund volatility has been very stable when considered relative to the
benchmark or relative to the Style strategy being applied.
This suggests that the manager probably had a risk control process in
place designed to limit stock selection risk. |
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Beta
risk indicates how the portfolio might have been “leveraged” against the
benchmark.
As the fund increased its exposure to Small Value, Beta increased.
However the increase was modest and short-lived, and now as the Small
Growth exposure has risen, Beta risk has fallen back. |
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