Style drift

Style Drift

A situation in which a mutual fund's investment strategies or goals change from what they were originally. Style drift can be explicit or implicit. For example, style drift may occur implicitly when a fund manager seeks ever larger returns for shareholders and tries out any number of investment strategies to achieve them. This is usually thought to be naive or even dangerous. Style drift can arise explicitly when a fund's situation has changed a significant amount; for example, a stock in the fund may grow to the point where it is advantageous for the fund to change its capitalization requirements. Style drift, if handled responsibly, can show flexibility on the part of the fund managers.

Style drift.

Style drift occurs if an investment manager moves away from the investment mix that's appropriate to a mutual fund or managed account portfolio based on the portfolio's objectives and style.

Such a drift typically occurs if the core portfolio is providing disappointing returns while other investments in the marketplace are performing better. In this case, a manager may feel pressure to increase the bottom line. The drift may also occur inadvertently if some of a portfolio's underlying investments take on different characteristics. For example, a small company may become a mid-sized company or a value investment may increase substantially in price.

The danger of style drift from a portfolio perspective is that you might end up owning investments that are more or less risky than you intended or that exposed you unexpectedly to portfolio overlap.

Advocates of index investing cite style drift as a key disadvantage of actively managed funds, pointing out that index investments stay true to their style no matter what's happening in the economy.

References in periodicals archive ?
Style drift refers to the tendency of some managers to drift away from their stated investment strategy or style
The fourth consideration was style drift, cited by 38.
They also found there are ways to optimize around trading costs, building portfolios that are transaction cost aware, and not suffering style drift.
Unwillingness to provide transparency Investors will assess strategy, disclosures made to other investors and track record, and expect access to sample portfolios to perform detailed risk analysis and identify style drift.
site visits, ADV review, financial review, regulatory/disciplinary proceedings, material litigation/arbitration, style drift, loss of key personnel, best execution determination, confirmation of a business continuity plan, proof of E&O insurance).
THE WAIT was finally over for the Monster Energy Hi Octane D1 style drift, the event organised by drifters for drifters and judged under D1 regulations.
Both Accounts have defined targets, tailored objectives that avoid style drift and include clear built-in stop loss guidelines.
Since ETFs replicate an index, they avoid manager style drift.
They are well-suited for variable subaccounts because they eliminate style drift that can occur in actively managed mutual funds and allow actuaries and hedgers to hedge more precisely the risks inherent in living benefits and death benefits.
Style drift is another disadvantage associated with mutual fund investing.
MPI created DSA to transcend the limitations of traditional RBSA - such as lag, overfitting, and inability to capture style drift and detect leverage - and give investors greater insight into their investment portfolios.
On the investment side, performance is advisers' utmost concern, indicating that they put delivering a robust investment lineup ahead of investment manager support, manager tenure, style drift and brand-even how they and the plan are paid.