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Tracking Funds as They Migrate Across theStyle BoxRussel Kinnel, Director of Mutual Fund ResearchConference Phone: 800 549-9585Access Code: 8099010Mute: *6Unmute: *7 2010 Morningstar, Inc. All rights reserved.1Outline StyleMovement Style Box Basics Who’s Moving2 2006 Morningstar, Inc. All rights reserved.1
Style Movement Fundswith large style movements often have undergone a strategyshift. Other times, it’s a manager moving in the direction of what he or shethinks are better opportunities. It can even be that the market itself moves and the fund hasn’tchanged holdings I.e. if a fund favors health-care stocks and healthcare stocksrally to higher valuations, then the fund would likely movefarther to the right of the style box even without making anytrades.3Style Box Basics Stylebox grid aims to capture market capitalization on the verticalaxis and value/growth characteristics on the horizontal axis. Size Components Large-cap, mid-cap, or small-cap based on marketcapitalization of the fund’s stock holdings top 70% of a market’s value in large caps, the next 20% inmid-caps, and the final 10% in small caps Style Components Value, blend, growth based on the value-growth orientationof the stock holdings 5 Valuation Characteristics and 5 Growth Characteristics4 2006 Morningstar, Inc. All rights reserved.2
Style Box Basics StyleBox Process Blue Shaded Area is 75% of fund’s assets Centroid is weighted average of all the fund’s holdingsOwnership ZoneStock LevelFund Level5Who’s Moving 2006to 2009 Study Weitz Partners Value (WPVLX) and Weitz Hickory (WEHIX) Fidelity Dividend Growth (FDGFX) Fidelity Small Cap Stock (FSLCX) Janus Orion (JORNX) Chase Growth (CHASX) Fidelity New Millennium (FMILX) Meridian Growth (MERDX) Fidelity Growth Discovery (FDSVX) Royce Special Equity (RYSEX) Fairholme (FAIRX)6 2006 Morningstar, Inc. All rights reserved.3
Holdings Based Style Map200920067The Great Style Migration Fundswith biggest moves across the style box from 2006 to 20098 2006 Morningstar, Inc. All rights reserved.4
Weitz Partners Value (WPVLX) and Weitz Hickory (WEHIX) Themove farther to value was partly the market’s doing. Both fundsenjoyed strong performances in 2006, which nudged valuationshigher, but they had a rough 2007 and 2008 as some financials andsome deep-value holdings got whacked.Weitz Partners Value9Fidelity Dividend Growth (FDGFX) Portfoliomanager change caused the fund to move down in marketcapitalization significantly to a 10.5 billion average market cap,which is just over the line for large caps.10 2006 Morningstar, Inc. All rights reserved.5
Fidelity Small Cap Stock (FSLCX) Newportfolio manager took the fund’s centroid just over the line intomid-caps while moving from growth almost to the value/blendborderline.11Janus Orion (JORNX) Portfoliomanager has taken this fund from the extreme edge ofgrowth to more-modest growth, though market cap is little changed.12 2006 Morningstar, Inc. All rights reserved.6
Chase Growth (CHASX) ChaseGrowth moved into growth and it has the poor performance toshow for it. The fund moved into names such as Google and Apple,but unfortunately, it was cyclical companies and financials that hadthe highest returns in 2009.13Fidelity New Millennium (FMILX) Newportfolio manager shifted the fund northwest from the extrememid-growth slot to large-blend with a slight growth tilt.14 2006 Morningstar, Inc. All rights reserved.7
Meridian Growth (MERDX) Portfoliomanager isn’t doing anything differently. It’s mostly thatnames such as Adobe Systems and Solera have rallied sharply and hehas held on as valuations rose.15Fidelity Growth Discovery (FDSVX) Portfoliomanager ratcheted up this fund’s growth orientation after hearrived in 2007, but it was a deep value bet that has really hurt thefund.16 2006 Morningstar, Inc. All rights reserved.8
Royce Special Equity (RYSEX) Portfoliomanager bought cheap stocks with strong balance sheets,and the market came to appreciate them and drove up their pricesand multiples.17Fairholme (FAIRX) Berkowitzsold energy and other natural resources stocks in mid 2008and by late 2009 was adding hard hit financials. The centroidmovement also illustrates how just a couple of changes can move afocused portfolio a great distance.18 2006 Morningstar, Inc. All rights reserved.9
Thank You!Questions or Feedback?Email: matt.eckstein@morningstar.comProduct Support: 312 424-4288Product Sales: 877 586-54051920 2006 Morningstar, Inc. All rights reserved.10
New portfolio manager took the fund’s centroid just over the line into mid-caps while moving from growth almost to the value/blend borderline. 12 Janus Orion (JORNX) Portfolio manager has taken this fund from the extreme edge of growth to
