Benefits of proper style classification of equity portfolio managers - Four-style portfolios exhibit the best performance

Institutional plan sponsors routinely employ multiple equity managers, each representing a distinct equity style. The benefits of style diversification, however, depend on an accurate classification of investment managers. The authors examine various style classification methods, and contrast the portfolio performance associated with each method. They find that classification of managers on the basis of exposures to large-cap growth, large-cap value, small-cap growth, and small-cap value risk factors provides a simple, effective, and objective trading strategy for improving portfolio risk-adjusted returns.