The law requires that mutual funds have a prospectus available for individual clients to review. This prospectus states the investment objective of the fund (whether the fund will invest in large-capitalization stocks, international bonds, real estate, etc.). Manager style drift relates to the fund manager’s style and the types of companies the fund will buy or sell. Over time, portfolio managers may change the types of companies they choose to invest in; this change is called manager “style drift.” Changes in the size, geographical location, or relative valuation of the companies included in the fund can alter a manager’s investment style. Since this investment style affects the performance of the fund, a portfolio manager should generally remain consistent in the types of companies he or she selects for the fund. >

The fund’s prospectus should clearly define the asset classes that will be included in the portfolio, the size of the target companies, and the growth or value tilt of the portfolio. A growth tilt means that the portfolio manager invests in stocks which have higher price earnings and price book ratios than the market and are likely to grow faster than the market. A value tilt means that the portfolio manager invests in stocks that are cheaper than the market and have lower price earnings and price book ratios than the market. A portfolio manager should not change the type of asset classes included in the fund. You are paying the manager to invest in the asset classes that are detailed in the prospectus, and this is what he or she should do. If you purchase a small company mutual fund, the fund manager should not purchase international or emerging market shares because these investments are not part of the fund’s target asset classes. If you want exposure to these asset classes, you should invest in a mutual fund that specializes in international and emerging market shares.

The portfolio manager’s investment style is described in the “Manager’s Style” box in the section called “Portfolio: Style Box Details” (see Table 25.5). The diagram in the “Manager’s Style” box lists the company valuation across the top and the company size on the side. The manager’s style box should not have changed over time. If you see that it has changed, find another fund where the style has remained consistent.>

Table 25.5
Morningstar Website: Style Drift