Reading 31: Equity Portfolio Management－LOS i

A value manager would have high earnings volatility because they are willing to take positions in cyclical firms. Low P/E ratios, low earnings growth, and representation in the utility industry would characterize a value manager.

A growth manager would have representation in the technology and health care industries. A value manager would have representation in the utility and financial industries. A growth manager would have a low dividend yield, low earnings volatility, and above average earnings growth.

Returns-based style analysis may detect style changes slowly because the regression requires historical data that may not reflect the current focus of the fund. Holdings-based style analysis will detect style changes more quickly than returns-based analysis.

Because the regression has fewer variables and doesnt attempt to measure growth or value content, it probably does not explain too much of the analysts returns, resulting in a low style fit. A lack of knowledge about the true investment style could easily lead to the use of poor benchmarks. The use of poor benchmarks often leads to misfit active risk. However, the returns-based analysis is not a risk-measurement tool, and is unlikely to raise concerns about risks that have not already been sparked by a different type of analysis.