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