Investment Style Research

Enhancing Returns Through Style Rotation

Investment styles are subsets of the stock and bond markets.

For example, company size (large, mid, and small-company stocks) is considered one stock market investment style. Nationality (developed international or emerging market) is another example.  There are several more. Research and experience has shown that stock (bond) investment styles perform differently at different points in an economic cycle.

Why is Style Allocation Important?

The simple answer is to increase returns. Johnston Investment Counsel’s style research suggests that:

  • Performance trends exist not for a day or week, but, often times, for years.
  • The performance difference between investment styles may be substantial. A small shift to one style may have a meaningful impact on performance results.

By maintaining a flexible allocation structure, investors can potentially increase investment returns. These adjustments can be made using style-based index funds, so an existing active manager structure is not affected.

How Does Johnston Investment Counsel Make Style Allocation Decisions?

In making style allocation decisions, whether they for stocks or bonds, Johnston Investment Counsel follows a similar process:

  • Evaluate the current macroeconomic environment and determine how it may influence future returns.
  • Determine the fundamental attractiveness of each investment style.
  • Examine the technical characteristics of each investment style.
  • Determine the magnitude of the style of “tilt.”