In 1992, Morningstar introduced the Morningstar Style Box as a means of classifying stock funds based on the size and value/growth orientation of their holdings. This framework has since been widely adopted as a means of categorizing and analyzing funds. In the nearly three decades since the style box debuted, our understanding of the different factors that explain stock returns has advanced. While size and value/growth exposures can help explain the difference between funds’ long-term returns, they don’t tell the full story. The Morningstar Factor Profile is a new lens that complements the Morningstar Style Box, incorporating additional factors that further explain funds’ exposures to well-documented sources of long-term returns.
Painting a Fuller Picture
The Morningstar Factor Profile provides a snapshot of funds’ exposures to seven different factors. These factors are common characteristics of stocks that can help to explain their long-term returns relative to the broader market. Each has been well-documented and vetted in academia, and implemented by investment practitioners.