Reason 1 is correct. Portfolio-based style analysis requires both the fund composition and benchmark composition to be known in order to conduct the analysis. Since many funds only release their holdings twice per year, getting accurate, up to date data on the fund could be problematic, thus favoring returns-based rather than holdings-based analysis. Reason 2 is incorrect. Because of spurious correlations and its purely statistical nature, returns-based style analysis can lead to misleading results. For example, a fund with no commodity exposure could show up as having significant commodity exposure as a result of spurious correlation. Reason 3 is also incorrect. Data input requirements means that returns-based style analysis may detect changes to a manager’s style slowly, or possibly not at all |
