Performing With Style

Style analysis is being used more and more in the study of fund managers. Investors increasingly demanding that managers identify their investment style, to aid in performance analysis, while consultants and academics are designing ever more sophisticated methods to determine the portfolio style of fund managers (Sortino (1996)). There are three basic approaches to style analysis. First, the examination of the portfolio and security selection procedures used by the fund managers. Secondly, a factor model approach, which uses the fundamental characteristics of securities to estimate any excess returns achieved to compensate investors for the systematic risk of the fund. Finally, returnbased approaches, which estimate the statistical relationship between the fund’s time series of returns and a set of indices which represent the fund managers selection universe. Of the return-based methods the effective mix approach, as devised and popularised by Sharpe (1988,1992), offers the investor the simplest route to style analysis. This study applies this approach to a sample of 37 property funds in the UK and shows that style analysis can make a important contribution to the analysis of portfolio performance. Results which should prove of considerable interest to fund managers and property professionals alike.