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The leopard’s spots

By: Mat Lystra, senior research analyst

“A leopard can’t change its spots” is a saying rooted in the belief that a person’s core character doesn’t change over time. The same cannot be said of the markets, public companies or investment strategies, which is why the Russell Style Indexes have become such powerful tools for portfolio measurement and construction.

Professional asset managers have built their portfolios around growth and value stocks for decades. Launched in 1987, the Russell Style Indexes were the first benchmarks that could be used to measure the performance of growth and value strategies.[1] The indexes allow investors to categorize the type of strategy a manager/fund is using (large cap growth, or small cap value, for example)—ignoring how a fund is marketed, to uncover its real DNA. This can be accomplished by comparing benchmark and fund data to reveal a match, giving a clear picture of a leopard’s spots.[2]

Similarly, the style indexes empower investors to see at a glance whether a portfolio strategy that touts adherence to a particular investment goal, in practice reveals a lack of discipline—a leopard that changes it spots by chasing performance. Preventing style drift keeps investment managers honest and investors aware of risk exposures they may not have intended or wanted.[3]

The chart below illustrates an example of the equity style box and style drift—the bubbles represent stocks being added to the portfolio. This hypothetical fund started out buying small cap value stocks, but subsequently drifted towards owning midcap growth stocks .

Hypothetical fund style drift

Source: FTSE Russell.

The Russell Style Indexes are reconstituted annually themselves to prevent them from “changing spots.” Reconstitution is the rules-based process through which companies measured by the Russell US Index Series are re-evaluated. Companies whose characteristics have changed substantially—and companies can and do change—are moved to their more appropriate index.[4] 

The integrity of the Russell Style Indexes process has helped make them the standard for index users. The style indexes are attractive for their objective rules-based approach grounded in an annual rebalance process. Through reconstitution they avoid style drift, staying true to the intent of the investor’s allocation (in other words, you know what you’re buying).[5] 

A leopard cannot change its spots, but an actively managed fund can. The Russell Style Indexes provide a framework for better understanding mutual funds and how they behave over time. Additionally, index users can use the indexes as tools to access broadly diversified exposures to the growth and/or value style.

For more detail on using Russell Style Indexes to understand mutual funds, please see our recent report, "The leopard's spots: Russell Style Indexes keep growth and value in focus."


[1] The seminal book “Security Analysis” by Graham and Dodd (1934) is widely credited for introducing concepts that would form the basis of value investing.

[2] The equity style box concept was popularized by Morningstar after introducing it as an analytic tool in 1992.  For more information please visit:

[3] Tuchman, M. (2014).  Return envy: Why ‘style drift’ matters.  Market Watch, retrieved on 8/31/2015 at:

[4] For more about Russell Indexes Reconstitution please visit:

[5] Financial Industry Regulatory Authority (FINRA).  Mutual Funds.  Retrieved on 8/31/2016 at:


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