Did you know that your mutual fund manager has a certain style? We’re not talking about how they dress, but the way they choose the investments they hold and manage on your behalf. Knowing what the various styles are can help determine the right funds and the right mix of funds for you.

Plus, diversifying your portfolio by management style can help you benefit when certain styles outperform, and protect you from volatility.

Four of the main styles are growth, value, bottom-up, and top-down investing. Let’s take a look at what distinguishes each style.

Value investing.

Value-fund managers seek out strong firms whose market price does not accurately reflect their intrinsic value. Essentially, the value style means buying stocks that are regarded as being “on sale.”

These managers pay close attention to a company’s financial information – such as debt levels, price/earnings (p/e) ratio, price/book value ratio and dividend yields – to determine whether its stock is overpriced, underpriced, or fairly valued.

Growth investing.

Growth managers seek out companies whose earnings they think will grow faster than those of their industry or the overall market. Growth mutual fund managers look for firms that have high earnings growth rates, a high return on equity, high profit margins, and low dividend yields. Investments are selected to maximize capital gains potential.

Some fund managers combine the growth and value strategies into an approach known as “growth at a reasonable price,” or “GARP” for short. GARP investors look for companies with consistent earnings growth above broad market levels while excluding companies that have very high valuation. The overarching goal is to avoid the extremes of either growth or value investing.

Bottom-up investing.

Bottom-up managers are looking to invest for the long term. They are typically stock-pickers, looking for companies, in any sector, that have strong financial fundamentals: low debt, strong earnings, and management with a good track record. These companies should outperform their competitors in any market.

The top-down approach.

Top-down fund managers look at the big picture. They analyze general economic conditions and determine which countries and industry sectors are positioned for growth and then pick individual stocks in those areas. For example, if a fund manager anticipates that the economy will grow sharply, he or she might buy stocks across the board.

Diversifying by style can add an extra layer of protection to your portfolio and help maximize its performance. Talk to us to find out more.