Investment style is important as it indicates whether or not the money manager is purchasing securities that are consistent with the money manager's stated and historical investment discipline, as well as with the particular account's investment parameters. If a money manager deviates from his expected style, the deviation can significantly undermine the account's objectives, decrease diversification and increase investment risk. Consequently, a client should understand a manager's investment style.

IPEX utilizes two distinct approaches to examine a money manager's investment style. The two approaches, Fundamental Analysis and Return Based Analysis, focus on two completely different aspects of management. Both forms of analysis are important, however, in attempting to determine how the money manager is actually positioning the portfolio and how the portfolio is actually responding to the ever-changing market environment. 

Fundamental Analysis is based upon the "fundamental characteristics" of the individual securities held in the account, e.g. Price / Earnings ratio, Price / Book ratio and Price / Cash Flow ratio in the case of equity securities, and quality, maturity and duration in the case of fixed income securities. These variables are then analyzed in relation to the corresponding averages for an appropriate segment of the broad market, based upon the portfolio's typical capitalization. Fundamental Analysis ignores the investment performance generated by both the overall account and all of the individual securities.

Return Based Analysis, on the other hand, is based upon the historical investment performance that the account's equity or fixed income securities have produced, i.e., whether they have generated a pattern of investment returns that is comparable to the return pattern of an index that has the same stated investment style. This analysis is offered in the form of an R-Squared Matrix and a Factor Analysis. Return based analysis ignores the fundamental characteristics of all of the account's individual securities.

While they are quite different, both of these approaches are legitimate measurements of investment style. In the case of any particular portfolio, however, these two approaches may produce results that are either complimentary or conflicting. Regardless of their consistency, both approaches are instrumental in raising issues for the client to consider as part of its evaluation and to discuss with its managers for further clarification.