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February 17, 2023

Lipper Updates Holdings-Based Analysis

by Jack Fischer.

Since 1999, Lipper has classified eligible equity funds based on the fundamentals of the portfolio’s underlying holdings. Over time, while various updates were applied to the quantitative, the outputs remained a constant staple in the investment industry.

The group of Lipper equity classifications that are analyzed by the model is known as the Holdings-Based Classifications or HBCs. Altogether, the classifications create the famed style box matrix which depicts a portfolio’s primary allocation to size and fundamental style of the investments held within.

Starting in May, Lipper will be rolling out its largest update ever to this methodology. While the fundamental inputs and basic calculations will generally remain, both the universe used to produce the classifications and the universe of portfolios run through the model will expand. For instance, instead of using the Russell 3000 and the S&P 500 to calculate capitalization breakpoints and style analysis, Lipper will leverage its complete security database. The security database will be broken up into 11 regions, allowing for more accurate analysis to be done on not only U.S. portfolios, but global and international mandates as well.

A second added feature of this enhancement is that non-HBC classifications (i.e., sector equity, regional equity, and some mixed-assets classifications) will be receiving style, size, and region attributes driven by the quantitative model. It’s one thing for an investment objective to say a fund “may” invest in this or that; it’s another for holdings-based analysis to prove it is.

Flow Time

This new model prompted me to look at 2022 flows by style, size, and region for the non-HBC funds. But first, how did the HBC funds do last year? Multi-caps and core funds took home the first-place trophy. In 2022, Lipper Multi-Cap Core (+$52.1 billion) and Lipper International Multi-Cap Core (+$38.8 billion) were the top two HBC classifications—only five of the 28 various HBCs attracted inflows over the year. Growth funds came in at the bottom—Lipper’s International Large-Cap Growth (-$32.7 billion), Mid-Cap Growth (-$23.2 billion), and Multi-Cap Growth (-$21.3 billion) suffered the largest outflows of the group.

Aggregating the HBC funds by size and style, we see that large-cap funds saw $79.9 billion in outflows, while all the growth HBCs realized $134.0 billion walk out the door. Looking at the primary region/country the HBC funds invested in, only funds that focused on Canada reported net inflows (+$408 million).

On the style front, growth-oriented funds also struggled in the non-HBC classifications—growth funds in Lipper Emerging Markets Funds (-$7.7 billion) were the largest attributor to outflows here. But while the total non-HBC growth outflow figure is ugly, there are a few bright spots. Growth-focused Lipper Equity Leverage Funds (+$13.2 billion) and International Equity Income Funds (+$1.1 billion) witnessed 2022 net inflows. Value-styled funds cause the largest directional difference between the HBC funds and non-HBC funds—value funds within Lipper Equity Income Funds (+$4.3 billion) led the charge here.

In terms of primary geographical region/country for non-HBC funds, the top three regions/countries to collect 2022 inflows were: the U.S. (+$36.2 billion), Emerging Markets Asia (+$6.5 billion), and China (+$3.4 billion). On the outflow side, the bottom three regions/countries were: Global (-$14.0), Developed Europe ex-UK (-$12.3 billion), and Asia (-$4.5 billion).

Since Lipper can now provide style box analysis to all eligible equity and mixed-asset funds, we can do additional peer group analysis on flows, performance, expenses, etc. The below shows the breakdown of 2022 net flows into the various sizes and styles within Emerging Markets Funds and Equity Leverage Funds.

For any additional questions on the underlying methodology, you can reach out to lipperglobalresearch@lseg.com.

Refinitiv Lipper delivers data on more than 330,000 collective investments in 113 countries. Find out more.

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