Why we focus on style diversification
The US stock market is made up of thousands of companies that can be defined by different style characteristics, such as growth and value. While some investors may seek to own the best performing style at various points throughout a market cycle, the performance of one or more styles of stocks may vary widely from year to year. This kind of "market timing" may result in the investor/portfolio being exposed to unintended risks. An effective way to remove market timing risk and help to create a smoother investment experience is thorough style diversification.
This diversification, or blending, of US stock investment styles may help to reduce volatility over the long term. While style diversification can't guarantee a profit or prevent a loss, it can help remove the urge to time the market and help to create a smoother investment experience over time.
Diversification across growth and value stock is important and may help to provide stability in changing markets.
Performance across investment styles*, 2005–2019
By allocating across investment styles and adjusting as needed, the portfolio seeks to provide less volatile returns than a U.S. Growth or Value index alone.