Should the momentum of the cyclical stocks continue, selectivity will become increasingly important. Near-term, leadership within the sector will likely be in the large capitalisation and most liquid stocks. Selectively, with cyclical stocks now no more being sicklical, more often we hear the phrase "growth is out of favour" or "the fund managers are switching styles", as more investment analysts are beginning to appreciate that a fund's "style" can have a major impact on both its risk and return.Therefore, it's important to understand investment style when building or modifying your portfolio.

First I explain "style" for equity funds, illustrate how different styles have taken turns leading the market, document how frequently equity funds have tended to switch styles or investors changed their preferences and wrap up with some rules of thumb for how you might incorporate style into your thought process.

Thumb Rules: Broadly classified, all the above class of stocks can be classified into growth and value stocks and based on their capitalisation into large, medium and small stocks.

The growth and value investment styles have led the market at different times. Since it is difficult to predict when each style will come out ahead, I recommend diversifying across the two styles. Therefore you avoid being too heavily invested in either growth or value stocks/funds during a prolonged period where performance may lag.

However, in my opinion one should have a larger allocation to growth thanvalue stocks as they cater to a large market, they are recession proof and independent of economy and political instability.

* Value funds/stocks have been less volatile than growth funds. Whether looking at the past 5, 10 or 15 years, the average value fund exhibited only three-quarters the volatility of the average growth fund.

* Funds may "drift" from one style category to another. We found that 8 out of every 10 growth funds and 9 out of every 10-value fund changed their style over the four-year period studied. However, I must state that most funds do not have a stated style preference, barring Templeton. Hence, the study was based on our classification of funds into growth and value funds.

An even greater shift was seen in the actively managed blend funds, over half of which drifted out of their style during the period. Therefore, it is important to monitor your funds' style categories to ensure they remain consistent.

* An Index fund will be the most consistent in its style, as the stockselection in an Index gives weightage to market capitalisation, and broad industry representation as well.

Value Research