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Growth
Growth at reasonable price
Value
Fundamental
Quantitative
Risk factor control
Bottom-up
Top-down
Growth
Growth managers focus on current and future corporate earnings and are prepared to pay high prices for strong growth potential. Although growth stocks are expensive they are expected to sell for a solid profit.
Growth managers pick companies with strong competitive edge in their sectors. A high level of retained earnings (meaning low or no dividends) and low debt are other desirable characteristics.
Stocks in a growth-style portfolio have a relatively high turnover rate since they are traded frequently. Portfolio returns are made up of profits on stock trades.
The growth style produces attractive results when markets are rising. On the other hand, portfolio managers need to show talent and flair in order to achieve investment objectives during downturns.
Growth at a reasonable price (GARP)
The GARP style focuses on reasonably priced securities with high potential.
A GARP portfolio usually consists of a limited number of securities. The sector breakdown of such portfolios may be slightly different from the benchmark index in order to take advantage of the growth prospects of sectors buoyed by current conditions.
Value
Value-style management looks for bargains! Managers look for securities that are undervalued compared with their expected returns. For instance, securities can be undervalued simply because they have fallen out of favour with investors.
The mix of assets in a portfolio is not changed frequently because portfolio managers hold on to equities, purchased at low prices, until they reach their full potential.
The value style performs best during market downswings, although it also reflects upswings.
Fundamental
Also known as the core style, the fundamental style aims to match the returns of a benchmark index by mimicking its sector breakdown and capitalization and strives to generate added value. Capital gains are made by underweighting or overweighting certain sectors or securities. Such differences are then monitored. This style is recognized for its cautious approach.
A fundamental style portfolio is highly diversified and contains a large number of securities.
Quantitative
Quantitative managers rely on computer models that track price and profitability trends to identify securities with higher-than-market returns.
Only the fundamental data and objective criteria of securities are considered and no qualitative analyses of the issuer companies or their sectors are carried out.
Risk factor control
This style for managing fixed-income securities takes into account all risk elements: the portfolio duration compared with the benchmark index, overall interest rate structure, the breakdown of securities by category of issuer, etc.
Bottom-up
Security selection is based on an analysis of the quality of the finances and situations of individual companies before considering the outlooks for the sector in question and the economy in general.
Top-down
In contrast to the bottom-up style, this approach consists in moving from the big picture to individual cases. Economic analyses are carried out first to determine which regions and which industries stand to benefit from growth. Portfolio managers then look for leaders and the most promising securities in these specific circumstances.
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