Mutual fund styles

TLDR

Mutual funds are typically grouped by their investment objectives or the style of their managers. The study proposes a new empirical method to determine manager style. The authors present a simple approach that captures nonlinear return patterns across active portfolio management styles. The resulting classifications outperform industry standards in predicting future and past performance, and growth funds split into multiple distinct categories.

Abstract

Mutual funds are typically grouped by their investment objectives or the 'style' of their managers. We propose a new empirical to the determination of manager 'style'. This approach is simple to apply, yet it captures nonlinear patterns of returns that result from virtually all active portfolio management styles. Our classifications are superior to common industry classifications in predicting cross-sectional future performance, as well as past performance, and they also outperform classifications based on risk measures and analogue portfolios. Interestingly, 'growth' funds typically break down into several categories that differ in composition and strategy.