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Rekenthaler Report

What, Exactly, Is a Flexible Fund?

Examining relative versus absolute approaches to fund categorization.


Another Perspective
Last week's column on flexible-stock funds raised a question from Morningstar's Mike Breen. In that column, I defined flexibility as does pretty much anybody else who looks at the issue: in relative terms. A flexible-stock fund is one that varies, relative to the current stock market, in the size and/or style of the securities that it owns. It may sometimes hold companies that on average are larger than what other funds hold, or smaller, and/or may sometimes own companies that on average sell at lower price multiples (that is, value stocks), and sometimes not.

In theory, therefore, a fund could own a portfolio that has fixed attributes--say, a median stock market capitalization that always runs about $10 billion, and a price/book ratio that hovers near 2--and yet Morningstar would score that fund as "flexible," rather than as "style consistent."

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.