CFAI book says holding based style analysis tells about effective current style more effectively than the return based, but no detailed explanation.
Any clue on this guys?
pg.199 R-23
Holdings based looks at current positions. RBSA looks at historical returns.
Because it looks at those fundamental P/E P/B ratios, easier to detect style change than return-based, which can only detect style drifting from historical weight changes, which needs longer period of time too.
Returns based style analysis is simply a regression analysis of the portfolio returns against a set of mutually exclusive indices. Your portfolio may hold 100% large cap equities, but if its returns are closest to a 60/40 mix of small cap equities and T-bills, then that’s what the returns based style analysis will show you. It tells you nothing about the portfolio’s holdings. _ Nothing _.