Step 6: Style Drifters in Under a Minute

Mark Hebner explains how style drift occurs when an active manager drifts from a specific style, asset class or index that is described as the stated investment purpose of a fund. Style drift is a serious problem for investors who believe they are invested in a portfolio that matches their risk capacity. Since managers of active funds seek to outperform the benchmark, they often wander outside the boundaries of the benchmark, altering the fund's exposure to risk and its volatility of returns. In contrast, passively managed funds adhere to rules of construction which, under normal circumstances, are held constant.

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