Morningstar Advisor - Winter 2008 - 11

“We use the Morningstar style boxes and categories—and returns-based style information provided by others—to create a “style matrix” for each of our portfolios under management. Because we create our own style analysis and manage portfolios to it, we’re not as concerned with style purity as we are with individual manager alpha and beta.” Roy Gust Benefit Performance Advisors, Scottsdale, AZ “We look very closely at the style box. When picking a manager, we look at the fund’s historical style box to look for “drift.” We don’t like drift. We hire a fund manager to manage a portion of a predefined asset allocation. Therefore, it is very important that managers “stay in their box.” We don’t want managers working against us.” Marjorie Bennett Aegis Capital Management, Inc., Oakland, CA “In our practice, for portfolios more than $300,000, we pay very close attention to the style box while setting an allocation strategy and we prefer little style drift. For someone with a smaller portfolio, we may use blend funds and style discipline is not as important. With a $100,000 portfolio, it makes sense to give some thought to allocation, but it certainly does not make sense to have 20 $5,000 positions for the sake of some great allocation strategy.” Jeffrey J. Pearce Vermillion Financial Advisors, South Barrington, IL “I am less concerned about investment style purity as time goes on. I won’t “fire” a manager if he or she does a good job even though the fund style shifts. In the end, I look for both: managers who are “style pure” and others who are just good managers, no matter where they roam.” Bruce Wiener Wiener Financial Management, Potomac, MD “I adhere closely to the Morningstar Style Box to ensure that a balance of investment styles is maintained within client portfolios. I allow for style drift only when it is outlined in the prospectus and generally do not tolerate a fund investing outside of its area of expertise to enhance returns, because the grass is not always greener on the other side.” Robert A. Matson Millis, MA “We don’t choose funds solely on whether they stay within a style box. A manager’s risk-adjusted performance is more important than whether or not a strict style fits into our model. After all, I can’t control if a fund has 100% large-cap stocks or, at some point, is only 80% large cap and 20% mid-cap—just like I can’t control an active manager’s cash level. Thus, we choose funds in each broad category and are aware of the cap weightings at the time of evaluation. I don’t worry too much how a fund bleeds over to the next box if the manager is a proven stock-picker. But I do pay attention if style drift places a fund in a different category. Then, I re-evaluate the fund in the new category against its peers.” Jeffrey M. Garell Silversage Advisors, Irvine, CA “I’m increasingly willing to give a manager leeway, as long as he sticks to his investment philosophy and process. For example, a GARP manager can cross capitalization ranges and even styles if he continues to do what made him successful.” Elliot Gartner Ocotillo Capital (SMH Capital, Inc.), Scottsdale, AZ “I use the style box approach, but I’m not that strict. The issue of tolerating style drift is a matter of degrees and dependent upon the size of the account and the client’s risk tolerance. The smaller the account, the smaller the number of funds I will use and the more flexibility I desire.” R. Scott Bachelder Riveredge Financial Services, Atlanta, GA “The Morningstar style box is a good starting guide for us. We use it to determine what funds are working in that space. Once we have a short list based on other parameters, we pull up the Ownership Zone chart to get a better feel of how the fund invests in that space. Some managers say they invest in a very defined way. These managers are more closely evaluated against their particular style box. Other managers say they will invest in various places, and as a result, these managers will be given a lot more leeway. For us, it really comes down to how the manager describes how he makes money.” Harold W. Kirschner Sharkey, Howes & Javer, Denver, CO MorningstarAdvisor.com 11

http://MorningstarAdvisor.com

Morningstar Advisor - Winter 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Winter 2008