FEDweek

Check Fund Management, Results

Not all mutual funds fit neatly into specific categories. Morningstar considers “value funds” to be those that hold stocks with low price-to-book and price-to-earnings ratios while “growth funds” are those holding stocks with high ratios. Today, though, some sectors (such as financial services) have strong growth prospects yet the stocks have low ratios. Thus, funds dedicated to buying growth stocks may find themselves in the value category. The implication for investors? “Style-specific” investing, a fad among investment pros, may not be the best way to select mutual funds. You’re better off focusing on past performance and manager tenure.