# CAMRADATA asks ‘Does style matter?’ in a new white paper on investment styles Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-12-05 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: CAMRADATA White Paper: Does Style Matter? Meta Description: Discover the key findings and insights from CAMRADATA's new white paper on different investing styles for institutional investors. Essential reading for URL: https://financedigest.com/camradata-asks-does-style-matter-in-a-new-white-paper-on-investment-styleshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd051217-1-2-1736843180980-compressed.jpg) CAMRADATA, a leading provider of data and analysis for institutional investors has published a new white paper [Does style matter?](http://www.camradata.com/wp-content/uploads/2017/08/Style-Investing-Whitepaper-FINAL.pdf) which examines different investing styles. The content was written following a roundtable discussion hosted by CAMRADATA with an expert panel of investment managers, pension consultants and asset managers. The white paper analyses the various investment styles managers employ. It focuses on the fact style exposures are key drivers of portfolio returns because different investment styles can outperform (or underperform) for prolonged periods of time, so it pays to understand the content of a style box and how it changes over time. Sean Thompson, Managing Director, CAMRADATA said, “Understanding and classifying styles helps [investors dissect the drivers of fund](https://www.financedigest.com/credit-suisse-to-repay-further-750-million-to-greensill-linked-fund-investors.html "Credit Suisse to repay further 0 million to Greensill-linked fund investors") performance more clearly, respond more intelligently and avoid knee-jerk reactions to the market’s changing style preferences. “Even as a database provider, a unified fund classification framework also helps overcome the [problem](https://www.financedigest.com/with-big-bets-on-musk-these-funds-may-have-a-tesla-problem-in-23.html "With big bets on Musk, these funds may have a Tesla problem in ’23") of inconsistencies among different fund managers in how they label their funds. Our [white paper looks at key](https://www.financedigest.com/white-bullets-collaboration-with-polands-sygnal-association-makes-a-significant-dent-in-ad-funded-piracy-in-this-key-european-market.html "White Bullet’s collaboration with Poland’s Sygnał Association makes a significant dent in ad-funded piracy in this key European market") styles and is essential reading for any investor.” **Key findings from the White Paper** Historically, the development of investment styles sprang from two sources – the index providers, notably Russell, who wanted to better attribute manager performance, and academics such as Barr Rosenberg and Ken French that attempted to [construct pure factor](https://www.financedigest.com/construction-machinery-sector-is-primary-growth-factor-for-industrial-hydraulic-filters-market-unveils-fact-mr.html "Construction Machinery Sector Is Primary Growth Factor For Industrial Hydraulic Filters Market, Unveils Fact.MR") returns. Smart beta and factor indices are the confluence of those two sources in [today’s investment world](https://www.financedigest.com/bridging-the-gap-between-banking-and-digital-accessibility-in-todays-digital-by-default-world.html "Bridging the Gap Between Banking and Digital Accessibility in Today’s ‘Digital by Default’ World"). The mechanistic nature of factor indices, however, highlights the limits of style in investing. Nick Samuels, head of equity [manager research](https://www.financedigest.com/new-research-suggests-over-13-million-brits-were-inadequately-managed-while-working-remotely.html "NEW RESEARCH SUGGESTS OVER 13 MILLION BRITS WERE INADEQUATELY MANAGED WHILE WORKING REMOTELY*") at pension fund consultancy, Redington made the point that a Quality index is a contradiction in terms. Nick said, “There are only a handful of Quality [stocks](https://www.financedigest.com/mutual-funds-vs-stocks-which-is-better.html "stocks") in the world. Creating a systematic index requires diversification but that only [waters](https://www.financedigest.com/stocks-tread-water-as-gold-oil-declines-spook-sentiment.html "Stocks tread water as gold, oil declines spook sentiment") down the effect of the real Quality stocks.” In [addition to any mechanistic analysis](https://www.financedigest.com/antimicrobial-protection-additives-for-adhesives-market-incredible-possibilities-growth-analysis-and-forecast-to-2028.html "Antimicrobial Protection Additives for Adhesives Market Incredible Possibilities, Growth Analysis And Forecast To 2028"), the panel agreed there needs to be subtler understanding of the differences between stocks and greater work on the prospects for each company. After all, some stocks can veer from ‘Value’ to ‘Growth’ through time. John William Olsen, portfolio manager of M&G’s Global Select Fund, said that as an active [investor](https://www.financedigest.com/chinas-patchy-covid-easing-sows-confusion-but-comforts-investors.html "China’s patchy COVID easing sows confusion but comforts investors") he believes that style categories can be “comfort blankets” for clients to give them a false sense of assurance they “know your style”. Mr Olsen worries that this could result in the manager worrying more about the “branding of stocks” than the actual soundness of investments. He provided an example of the paradox of style. He said, “If you are a contrarian investor, you may well score low on momentum. Contrarians go against market sentiment. I don’t mind having momentum in the fund, but it’s not something we aim for. We want the negative momentum when we invest to [turn into positive](https://www.financedigest.com/world-stocks-turn-positive-in-may-on-fed-bets.html "World stocks turn positive in May on Fed bets") momentum. You have to be [careful with style analysis](https://www.financedigest.com/multi-functional-point-of-care-testing-market-growth-analysis-opportunities-trends-developments-and-forecast-to-2028.html "Multi-Functional Point Of Care Testing Market Growth Analysis, Opportunities, Trends, Developments, And Forecast to 2028") because it is just a snapshot in time.” The experts also discussed turnaround successes, which are attractive to many managers. Laurence Bensafi, portfolio manager of RBC GAM’s [Emerging Markets](https://www.financedigest.com/investment-potential-in-emerging-markets.html "Investment potential in emerging markets") Value strategy, is a big fan of turnaround opportunities. **But how do the experts pick turnaround [winners rather than losers?](https://www.financedigest.com/the-pound-gilts-and-stocks-likely-winners-and-losers-from-uk-budget.html "The pound, gilts and stocks: likely winners and losers from UK budget")** RBC GAM has a scorecard of 27 questions about [governance to ensure its selections work](https://www.financedigest.com/uk-minister-says-government-will-work-with-obr-on-economic-forecasts.html "UK minister says government will work with OBR on economic forecasts"). Failure on any of the questions will end MsBensafi’s interest. The spotlight turned to the [investment consultants who all affirmed they use style in analysing managers’ performance](https://www.financedigest.com/esg-investing-does-that-mean-sacrificing-performance-is-the-uk-the-right-place-and-how-to-do-it-properly.html "ESG Investing – Does that mean sacrificing performance? Is the UK the right place? And how to do it properly"). Martin White, managing director at [investment firm](https://www.financedigest.com/toshiba-in-talks-with-four-investment-firms-for-strategic-ideas-sources.html "Toshiba in talks with four investment firms for strategic ideas -sources"), Cambridge Associates, said its research team looks at managers internally by style. It also follows the categorisations such as Value, [Growth and Core](https://www.financedigest.com/ab-inbev-aims-for-core-profit-growth-of-4-to-8-over-medium-term.html "AB InBev aims for core profit growth of 4% to 8% over medium term") provided by US manager performance databases, although these are not adopted by Cambridge rigidly. He says, “growth is such a loose term.” Nick Samuels said, “We like style with a behavioural, longstanding endorsement. We have a clear philosophy about styles that work. For us, they are value, momentum and quality. There ought to be a behavioural underpinning as to why these styles should continue to work. Humans don’t really change.” Grace Lavelle, senior associate at consultancy and fiduciary manager, PSolve, said it was important to consider a manager’s style when evaluating their effectiveness. This matters as style in capital markets, can wax and [wane in their effect and can have a significant impact](https://www.financedigest.com/zurich-insurance-h1-operating-profit-leaps-60-as-covid-impact-wanes.html "Zurich Insurance H1 operating profit leaps 60% as COVID impact wanes") on performance. By removing the effects of style from performance, it is easier to isolate a manager’s [stock picking skill and gain](https://www.financedigest.com/stocks-dollar-gain-on-resilient-u-s-economy.html "Stocks, dollar gain on resilient U.S. economy") a more accurate picture of their added value. Style is also important when it comes to manager selection and asset allocation, with different styles looking more or less attractive at different times. The conversation then turned to beta, any [active strategy’s sensitivity to market](https://www.financedigest.com/the-plant-activators-market-to-witness-steadfast-growth.html "The Plant Activators Market To Witness Steadfast Growth") movements. Nick Samuels said, ““Beta plus style accounts for a large portion of most portfolio returns. This [drives client experience and managers](https://www.financedigest.com/cyclic-innovation-to-drive-the-medical-case-management-services-market.html "Cyclic innovation to drive the Medical Case Management Services Market") respond accordingly.” Grace Lavelle agreed that clients can become unhappy with short-term underperformance even if caused solely by the manager’s style being out of favour, despite having [long-term investment](https://www.financedigest.com/what-makes-a-good-long-term-investment-strategy.html "What makes a good long-term investment strategy?") horizons. It is therefore important to present performance against appropriate benchmarks and to have the patience to consider performance relative to a broad [market](https://www.financedigest.com/eu-watchdog-backs-esg-quality-label-for-market-benchmarks.html "EU watchdog backs ESG ‘quality label’ for market benchmarks") benchmark over the longer term. Mr Olsen said this is part of the problem looking to style metrics. Managers are judged over one investment cycle instead of the longer term. One well-established mechanism for smoothing returns is to hold managers in the same asset class but with different styles. On the topic of beta, Clark noted that some of the largest asset owners in the world are now beginning to shun mainstream indices as they prefer to create their own beta, or “move the goalposts”. Many such shifts are caused by responsible investing, which means that environmental, social and governance (ESG) is becoming more influential as these metrics join standard financial metrics in [company evaluations](https://www.financedigest.com/truic-evaluates-the-biggest-business-incorporation-companies-in-the-us.html "TRUiC Evaluates The Biggest Business Incorporation Companies in The US"). Sean Thompson, Managing Director, CAMRADATA said, “In investing, style does matter, and has done so increasingly this century. Ever more managers, consultants and sophisticated clients discuss whether Value, Growth, Quality, Momentum or Small Caps are in fashion. Few managers can escape attribution of their returns by reference to style and its many variants. “While the white paper explores lots of the traps caused by categorisation, there was unanimity that styles are a good thing because they inform understanding of risks and returns. However, it’s [important to also note truly active](https://www.financedigest.com/tissue-cultured-date-palm-market-pegged-at-us-4-5-bn-value-pool-in-2027-import-export-activities-take-a-downturn-amid-coronavirus-outbreak-future-market-insights.html "Tissue Cultured Date Palm Market Pegged at US$ 4.5 Bn Value Pool in 2027; Import & Export Activities Take a Downturn Amid Coronavirus Outbreak: Future Market Insights") managers ought to be analysed on a wider range of criteria and not boxed in by narrow definitions,” adds Mr Thompson. Click [here](http://www.camradata.com/wp-content/uploads/2017/08/Style-Investing-Whitepaper-FINAL.pdf) to download the White Paper. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---