Posted in Finance, Accounting and Economics Terms, Total Reads: 89
Definition: Style Drift
A style drift is a variation in the style of a mutual fund’s goals or strategies due to various reasons. For example, it can take place when a fund manager tries for larger returns for its shareholders and tries out different strategies to achieve them. Style drift is generally taken as risky or dangerous.
Style drift generally takes place when the core portfolio of the mutual fund isn’t generating the expected profits and other competing products are doing better in the market. The manager may be pressurized to change the strategies that were earlier decided upon. The drift may also occur if the characteristics of the underlying investments change, for example, a micro level company can become a mid-sized company. The managers may resort to using different strategies to improve the performance of the investment in the market and to generate more returns. Style drift is generally counterproductive and can change the risks and returns associated with the mutual fund.
The danger associated with style drift is that the risks associated with the product might change than that of earlier. It is generally taken as a disadvantage to the management of the fund.