Morningstar has made some changes to its Style Box methodology. The original Style Box analyzed a fund by its market capitalization and its growth or value orientation. The additions will begin appearing this summer.

The new model will have 10 factors. There will be value and growth "style scores". Value is evaluated based on price-to-projected earnings, price-to-book, price-to-cash flow, and dividend yield. The growth score will depend on a calculus of long-term projected earnings growth, historical earnings growth, sales growth, cash flow growth, and book value growth.

Growth or value will be determined based on the dominant score. If there is no dominant score, the equity will be designated as "core".

"While the appearance of the Style Box remains the same, with the new methodology in place, investors can look forward to more accurate and more stable classifications. In addition, having 10 factors will enable a clearer depiction of the differences between funds that have the same Style Box assignment but different stock selection strategies. For example, one growth manager may focus more on sales growth while another focuses more heavily on cash flow growth. By documenting and scoring both variables, we can show nuances of style that previously escaped investor attention," stated Don Phillips, managing director. 

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