Another Perspective

Last week's column on flexible-stock funds raised a question from Morningstar's Mike Breen. In that column, I defined flexibility as does pretty much anybody else who looks at the issue: in relative terms. A flexible-stock fund is one that varies, relative to the current stock market, in the size and/or style of the securities that it owns. It may sometimes hold companies that on average are larger than what other funds hold, or smaller, and/or may sometimes own companies that on average sell at lower price multiples (that is, value stocks), and sometimes not.

In theory, therefore, a fund could own a portfolio that has fixed attributes--say, a median stock market capitalization that always runs about $10 billion, and a price/book ratio that hovers near 2--and yet Morningstar would score that fund as "flexible," rather than as "style consistent."