Style Drift and Portfolio Management for Active Australian Equity Funds

36 Pages Posted: 3 Aug 2007

See all articles by Andrew Ainsworth

Andrew Ainsworth

University of Wollongong - School of Accounting, Economics & Finance

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance

David R. Gallagher

Rozetta Institute

Date Written: April 2007

Abstract

Using monthly active equity fund portfolio holdings, we examine the magnitude of style drift and decompose it into active and passive components. We find that while fund style tilts are consistent with their self-stated investment objective, there is variation in the degree of style bias within style groups. We document that funds actively adjust their portfolio holdings in response to passive style drift to retain a desired portfolio tilt. The degree of adjustment varies with the frequency over which the drift is measured, with funds being most responsive to changes in book-to-market and momentum drift. We also find that certain types of style drift affect portfolio turnover.

Keywords: investment style, style drift, consistency, portfolio management, investment performance

JEL Classification: G23

Suggested Citation

Ainsworth, Andrew and Fong, Kingsley Y. L. and Gallagher, David R., Style Drift and Portfolio Management for Active Australian Equity Funds (April 2007). Available at SSRN: https://ssrn.com/abstract=1004670 or http://dx.doi.org/10.2139/ssrn.1004670

Andrew Ainsworth (Contact Author)

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

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