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Morningstar Launches Broader Style Indexes for Stocks

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Morningstar has launched a new suite of equity indexes that goes beyond its traditional nine-square style box indexes that characterize fund holdings by market cap (large, mid and small) and investment styles (growth, value or a combination, called core).

The 12 new Morningstar Broad Style Indexes cover more segments of the equity market and will “facilitate better benchmarking of active strategies,” says Morningstar.

The indexes include large-cap, large-mid cap and mid-cap categories as well as an extended small-cap category that covers up to 99.5% of U.S. small-caps rather than the 97% included in Morningstar’s style box. Each of these four cap-weighted boxes are then assigned growth or value designations. There is no blend or core designation, as in Morningstar’s traditional equity indexes.

Stocks that don’t exhibit a clear style orientation are partially allocated to both value and growth indexes, creating some overlap in constituents, according to a Morningstar report. Apple, for example, appears in both large-cap growth and value indexes because some of its attributes like price-to-book tend toward growth while others like earnings growth are closer to value, explained Morningstar strategist Dan Lefkovitz. That is another characteristic that differentiates these new style indexes from the Morningstar Style Box, which they complement.

“These differences make the broad style indexes more reflective of the investor opportunity set,” according to the Morningstar report. “Active managers can disagree about whether a stock is growth or value, resulting in some stocks being held in both active growth and active value portfolios.” 

BlackRock announced in mid-December that the nine existing funds in its iShares Morningstar U.S. equity Style Box ETF suite will begin tracking the new Morningstar Broad Style Indexes sometime after March 19.


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