New method accurately classifies US equity funds, improving investment outcomes.
The article explores different methods to analyze the investment styles of US Diversified Equity Funds. By using cluster analysis and RBSA factors, the researchers created style groups to classify mutual fund returns. They introduced a Best Fit Index (BFI) that considers market segmentation and benchmarking, which helps in better classifying investment styles. Both methods explain a large portion of fund returns, but the BFI method performs better and is more aligned with real-world investment practices.