Posted in Finance, Accounting and Economics Terms, Total Reads: 298
Definition: Style Box
Style box is a 3x3 graphical matrix representation of the investment characteristics of an equity, bond or a mutual fund. The matrix helps the investor to understand how his or her funds are being allocated.
For equities and equity funds, the horizontal axis is divided into 3 investment style categories- value, blend and growth. Growth corresponds to those funds that are expected to grow faster than the average market growth rate. Value funds are those that are available at a lower price than their intrinsic value, but have a potential to fetch a higher value in the long run. Blend includes those funds that show both growth and value characteristics. The stocks or funds are classified into each of these categories based on their price to earnings (P/E) and price to book (P/B) ratios.
The vertical axis is divided into 3 categories- large, medium and small depending upon the market capitalization. Out of all the stocks, top 5% are classified as large cap, next 15% as medium cap and the rest as small cap.
For bonds and bond funds, the horizontal axis is divided into 3 categories- short, intermediate and long term based on the maturity period of the bonds in the portfolio. The vertical axis is divided into 3 categories- high, medium and low based on the credit quality of the bonds.
Above is the graphical representation of equity and fixed income style boxes