One emerging trend on display at the recent Morningstar Investor Conference here was out-of-the-box thinking. The box, in this case, is...

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One emerging trend on display at the recent Morningstar Investor Conference here was out-of-the-box thinking.

The box, in this case, is Morningstar’s ubiquitous style box, a measure that was designed to help fund investors but which has actually hindered some fund managers — and some shareholders — over the years. For typical investors relying on a style box to define the kind of fund they are buying, the debate comes down to old-school thinking, going back to a time when investors wanted a manager for his or her style, rather than a fund for the style box it fits into.

Style boxes were developed by Morningstar as a way to categorize mutual funds, to describe the investments that a fund buys. It’s a nine-box grid — think tick-tack-toe board — that shows where the fund buys its groceries and the cooking style on the menu.

The vertical columns represent whether management buys growth stocks, value stocks or a blend of the two. The horizontal rows represent the market capitalization of the securities the fund invests in. The result is that a large-cap growth fund gets the top right box, while a small-cap blend fund is ascribed to the center spot on the bottom row.

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The problem is that once a manager is assigned to a box, the description can become a straitjacket. Style drift — moving from one box to the next — was publicized as a huge problem for investors building portfolios that relied on a specific asset allocation.

Funds that were hard to define, or that moved based on the best ideas of the manager, got no love from the advisory community. Fund managers wanting to gather assets, therefore, wound up constrained by the boxes.

In 1999, in a keynote speech I gave at a Morningstar conference, I warned that “style commandos” were dictating strategy and that “management hostages” were allowing it to happen.

That trend finally seems to be easing, albeit slowly. Style boxes are good when they keep an investor from getting a false sense of diversification after investing in a few funds. Having investments that cover the bulk of the grid is good form in asset allocation.

But obsessing about which boxes are covered and worrying when a fund moves slightly is overkill.

It is becoming clear that more planners are less concerned about boxing a fund in than about the manager’s investment process and results. Morningstar itself created “ownership zones,” which show the entire spread of holdings in the style-box system.

Most funds are centered in one box but have holdings that spread into others. How far afield they go is a good indicator of whether the fund sticks to one zone or moves around.

Throughout the Morningstar conference, the top fund managers noted repeatedly that they search for investments based on their own discipline and not based on what box they are lumped in.

Not all advisers like the idea of backing away from reliance on the box, but individual investors should be intrigued.

After all, the first six decades of mutual funds — the ones before the style box — were all about getting professional management and diversification at a reasonable price. Limiting a manager’s ability to go where the best bets are based on their personal investment criteria reduces the chances for the manager to be effective.

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.