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Primary Article

Estimating Portfolio Style in U.S. Equity Funds

A Comparative Study of Portfolio-Based Fundamental Style Analysis and Returns-Based Style Analysis

John Rekenthaler, Michele Gambera and Joshua Charlson
The Journal of Investing Fall 2006, 15 (3) 25-33; DOI: https://doi.org/10.3905/joi.2006.650140
John Rekenthaler
Vice president of New Product Development with Morningstar, Inc. in Chicago, IL.
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  • For correspondence: john.rekenthaler@morningstar.com
Michele Gambera
A senior quantitative analyst with Morningstar Associates in Chicago, IL.
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  • For correspondence: michele.gambera@morningstar.com
Joshua Charlson
A managing editor, with Morningstar Associates in Chicago, IL.
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  • For correspondence: joshua.charlson@morningstar.com
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Abstract

Investment style has become a prominent concept in the world of investment management. Peer groups used by rating agencies to rank investments are built according to style. Little academic research has empirically compared the two most common approaches to investment style: portfolio-based (fundamental) and returns-based style analysis. This article completes the literature with an empirical analysis of the two methods' accuracy using 287 open-end diversified U.S. equity mutual funds for six years. While both methods are useful, the portfolio-based approach is generally more accurate. Moreover, fundamental analysis maintains its advantage even when older portfolios are used. This result counters a frequent criticism of the approach.

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Estimating Portfolio Style in U.S. Equity Funds
John Rekenthaler, Michele Gambera, Joshua Charlson
The Journal of Investing Aug 2006, 15 (3) 25-33; DOI: 10.3905/joi.2006.650140

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Estimating Portfolio Style in U.S. Equity Funds
John Rekenthaler, Michele Gambera, Joshua Charlson
The Journal of Investing Aug 2006, 15 (3) 25-33; DOI: 10.3905/joi.2006.650140
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