Style Analysis for Diversified U.S. Equity Funds

Journal of Asset Management 13, 170-185 (June 2012) DOI:10.1057/jam.2012.6

31 Pages Posted: 25 May 2012

See all articles by Andrew Mason

Andrew Mason

University of Surrey - Surrey Business School

Frank McGroarty

University of Southampton - Southampton Business School

Steve Thomas

City University London - Sir John Cass Business School

Date Written: February 1, 2012

Abstract

In this study we consider two methods of returns based style analysis for classification of investment styles for a single asset class, US Diversified Equity Funds. We extend Sharpe’s (1992) style Returns Based Style Analysis (RBSA) by forming style groups using cluster analysis and RBSA factors. We also introduce a parsimonious Best Fit Index (BFI) of style classification which explicitly acknowledges the existence of market segmentation and practitioner benchmarking. The methods provide complementary information about mutual fund returns. Both methodologies explain a significant proportion of the cross section of out of sample returns, but the BFI method performs better out-of-sample is more transparent and more closely aligned to investment practice.

Keywords: Style, Investment, Benchmark, Portfolio, Value, Factors

JEL Classification: G10, G11, G14, G20, G23

Suggested Citation

Mason, Andrew and McGroarty, Frank and Thomas, Stephen H., Style Analysis for Diversified U.S. Equity Funds (February 1, 2012). Journal of Asset Management 13, 170-185 (June 2012) DOI:10.1057/jam.2012.6. Available at SSRN: https://ssrn.com/abstract=2066041

Andrew Mason (Contact Author)

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 5XH
United Kingdom
+44-1483-683093 (Phone)

HOME PAGE: http://www2.surrey.ac.uk/management/people/andrew_mason/

Frank McGroarty

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Stephen H. Thomas

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

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