Morningstar created the style box as a way to get a quick glance of where a portfolio is invested. This can be a mutual fund portfolio or even your own portfolio.
There is a stock version and a bond version.
What Makes Up A Stock Style Box
- Size of company: small, medium or large capitalization (cap) companies.
- Investment Style Categories: value, growth or a blend.
What Makes Up A Bond Style Box
- Duration - short, medium or long term.
- Credit Quality - high, medium, low.
You can tell where a mutual fund is invested by looking for the square that is blacked out. This is where a majority of the investments will be found.
With bond funds, it is typically one box, but with stock funds they show a percentage of where a fund is allocated in each square.
On Morningstar you can also look at historical style boxes, to see if anything has changed.
They look like this:
Bond Style Box
Stock Style Box
How to Use the Style Box
There are two main things you want to use the style box for.
First, you want to use it to confirm they have invested in what they say they are investing in!
Funds have a tendency to allow style drift to occur.
This means that they started investing as one style, such as a value fund, but may have shifted to growth.
This can happen when the fund gets a new manager. It can also happen when a manager does not sell stocks when they no longer match the objective of the fund.
An example of this would be a small stock fund that does not sell as the companies grow. Thus the fund moves to a medium or large cap fund over time.
The style box does ensures that you are getting what the prospectus says they are investing in.
Want more information on how to pick out a mutual fund? Check out The Ultimate Guide to Choosing a Mutual Fund