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Style <I>Is</I> Substance

Contrary to what Cramer says, mutual fund shareholders should care about a manager's investing style.

You can't call me a stickler for style. In fact, I usually steer clear of anything labeled "chic." (There's a reason my first bike was a

Honda

and not a

Harley

.)

But style matters to me in one place: my portfolio. Paying attention to a fund's style does pay off. Not only can you better allocate your assets if you know the stocks and strategy a manager follows, but by picking funds that stick to a style, chances are you'll end up with those that are higher return and lower risk than if you don't.

I know, I know -- that's not the word from

Cramer

. In a recent

column about underperforming

PBHG

(PBEGX)

Emerging Growth, he says, "Mutual fund shareholders don't care and have never cared about style. They care about return, as in, if you generate it you keep the money, and if you don't they take it away."

He goes on to declare that "it's time for those who sacrifice performance for style purity to wake up and smell the coffee."

I'm not here to defend either Emerging Growth's manager or the earnings momentum model she refuses to relinquish. And, of course, there's no question the bottom line

is

the bottom line. We all invest for a reason, after all: to make money. Who wants a style slave unwilling to abandon a long-term losing philosophy? But style purity can be a plus, and investors should care about where a fund falls on the value-to-growth and small-cap-to-large-cap spectrums. And they do need to watch whether their managers make a dramatic switch from, say, small value to large growth.

These days, a lot of style shifters do so out of desperation, following trends rather than anticipating them. Not surprisingly, most of the funds that skipped around

Morningstar's

style box in the last year were trying to jump on the large-growth bandwagon.

While this may boost returns in the short term, it doesn't do much in the long haul. In fact, it can hurt performance. That's been my gut feeling for quite some time, but now a new study backs me up. Morningstar found that in the last three- and five-year periods, style-pure funds -- those consistent in their categories -- demonstrated a clear performance advantage. That was true not just for large-cap growth funds, but for small-cap growth, and small- and large-cap value as well. In most cases, they also were less volatile than the style drifters.

"Managers who are shifting around a lot are often not adding much value," says Morningstar's Peter Di Teresa.

So how do you figure out if your funds are style shifting? Don't count on them to tell you. Most rely on the meaningless classification listed in the prospectus. Managers could turn triple somersaults in the wiggle room provided there. (Capital appreciation fund is a favorite objective. Boy, that really reveals a lot. Right.)

When I asked a marketer with

(SSFAX)

Style Select Focus and

(SSVAX)

Style Select Value how shareholders would know that both those funds had recently changed their Morningstar categories, he said, "I don't know."

Here's a list of a few funds that jumped Morningstar categories in the last 12 months. Take a look at

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(SBOAX)

Concert Investment Peachtree Growth, which bounced from Small Value to Large Growth. Didn't seem to help much. One-year returns are worse than three-fourths of its peers, and year to date, Peachtree Growth actually lost money, down 3%.

Countrywide Aggressive Growth

, which jumped from large growth to mid blend, is off more than that this year, losing 6%, to bump along the very bottom of its category.

This is not to say a fund's style stability should rigidly rule your investment decision-making. Keep in mind that some of the style shifters may have moved to large growth for good reasons. Perhaps their stocks did so well they tipped the median market-cap scale. Also remember there are a number of great managers who would never pass the style consistency test: Jim Gipson of

(CFIMX) - Get Clipper Fund Report

Clipper Fund and Ken Heebner of

CGM

, to name a few.

No, style cannot be your only criterion when choosing a fund. Nor should you necessarily sell a fund when it is less than consistent.

But sometimes style

is

substance.

More Boss Talk

You could say

Springsteen's

style shifts (his

Greetings From Asbury Park, NJ

album to

Tunnel of Love

?), but he's still the Boss.

I found that out when I mentioned Bruuuuuuuuce in my last

column. I was deluged by email voting for his best song.

Thank God none of you mentioned "Dancing in the Dark," "Hungry Heart" or "Born in the USA." (Of course there had to be a naysayer who just doesn't get it: "The Best Boss song? Aren't all his songs the same? Or are they identified by the model car mentioned?" As they say about motorcycling, if I have to explain, you just wouldn't understand!)

Seems early Bruce is most popular with

TSC

readers. "I Came for You," "Tenth Avenue Freeze-Out," "It's Hard to be a Saint in the City" and "Jungleland" are among the favorites.

But far and away, my personal pick received the most votes: "Thunder Road." As reader

Don Testa

wrote, "It's not even a contest. A case could be made for this being the BEST rock song ever!"

No argument there. But I do sympathize with one reader who spent an entire evening with his friends talking about my "boss talk." "A conclusion on one song could not be reached," he writes. "His first three albums count as our favorite song."