At the Wealth Advisor Summit, Craig Callahan, founder and president of Icon Advisers, Inc. in Greenwood Village, Colorado, made a compelling case for releasing portfolio managers from the constraints of style boxes. In fact, he said that hiring a manager to manage to a style box could mean that investors do not get that manager's best picks.
A panel including Ranji Nagaswami, vice chairman and CIO at AllianceBernstein; Bill Fries, managing director and portfolio manager at Thornburg Investment Management; and moderator Phil Edwards, managing director of Standard & Poor's Investor Services, discussed whether style boxes are necessary.
"Growth and value are distinct styles," said Nagaswami, "cap matters, but all-cap offers flexibility." Global funds afford their managers the freedom to invest domestically or around the world. The approach she suggests includes--in the same portfolio--both global growth and global value--the "freedom to go around the world. All else is sub-optimal." In his 30-plus years in investment management, Fries said he "mostly didn't worry about style." He does worry more about volatility and risk; "when things go bad, clients want to bail out," often at the worst possible time. If clients are risk averse, Fries would rather construct a portfolio with lower volatility if that makes clients comfortable. S&P's Edwards pointed out that "most funds don't manage to the box," while Callahan argued that it's fund company marketing people who use the grid most--they say they can sell a certain type of fund, and that's what they ask for from managers.--Kathleen M. McBride