Style Box

Style boxes were created by Morningstar and designed to visually represent the investment characteristics of stocks and mutual funds. Style boxes provide a graphical representation of investing categories for both fixed income and equity investments. A style box is a valuable tool for investors to use when determining asset allocation. There are slightly different style boxes used for equity and fixed-income.

Style boxes are primarily used for stocks and mutual funds. They are constructed as a nine square grid with a horizontal and vertical axis.

For stocks and stock funds the vertical axis of the style box graphs market capitalization and is divided into three company-size indicators: large, medium and small. The horizontal axis varies slightly for stocks and mutual funds. The horizontal axis seeks to represent growth and value styles. The stock style box classifies individual stocks by growth, value and core. The stock mutual fund style box classifies individual stocks by value, growth and blend which represents a combination of both value and growth.

For bond funds, the horizontal axis shows a fund’s maturity categories represented by: short-term, intermediate-term and long-term. The vertical axis is divided into three credit-quality categories grouped by credit rating: high, medium and low.

Morningstar is the primary source for style box analysis however technology across the industry can produce various style box representations. A style box can help investors better understand the qualities and characteristics of an investment. An investor can also use style box analysis to build a diversified portfolio of investments across categories.

For example, an investor looking for a relatively safe stock fund as a more conservative investment for the equity portion of their portfolio could seek something in the large-cap value box, since large-cap earnings are generally stable and value funds are good for long-term holdings. If that same investor is looking for something with more risk and greater return to add to the more aggressive portion of their portfolio then they might want to select a fund in the small-cap growth category.

Morningstar allows investors to filter funds by style box category. While style box category provides a guide for investment, investors should also do careful due diligence to ensure a fund meets their investing interests. Morningstar analyzes stocks and funds by style box category for investments from around the world. Their style box rankings include both domestic and international investments with risk characteristics ranging broadly across the investment universe.