The Value Research fund style box depicts a fund's investment style
07-Mar-2011 •Research Desk
How do you classify a fund as growth or value? Sometimes a value funds are shown as growth funs in your style box; why is it so?
The Value Research fund style box is arrived at by analyzing a fund’s actual portfolio and not the stated objective of the fund and is revised every month. It is for this reason that a fund that states value as its objective may be growth based on its actual portfolio holdings and hence is assigned a growth style. Moreover, the style box is revised every month based on the actual portfolio and there is a possibility of a fund’s style shifting with each passing month.
Stocks are first classified into large-, mid- and small-cap based on their market capitalization. Then weighted PE score is computed by multiplying PE Ratio of each stock by percentage of market cap. Then the percentile Rank of the Weighted PE Score within the market cap group is computed to arrive at the final PE score. Similarly, the PB score is computed. Then the valuation score of the stock is computed by adding the two i.e. PE and PB score.
Within each market cap group, the median of the valuation scores of all the stocks is computed. Then, the stocks which have a valuation score greater than 15 per cent of the median are assigned as Growth stocks, whose valuation score lies below 15 per cent of the median are assigned as Value stocks and the rest as Blend.