What does returns-based style analysis primarily rely on?

Returns-based style analysis primarily relies on regression analysis of portfolio returns. This analytical technique allows investors to assess the performance of a fund by examining its historical returns in relation to various asset class benchmarks. By performing regression analysis, analysts can identify the sensitivity of a fund's returns to the returns of different market indices.

This method is particularly valuable because it provides insights into the investment style and risk exposures of the fund without needing detailed insight into the individual holdings. By analyzing the returns over time, investors can effectively determine the style of management (e.g., growth, value, or blend) and understand how the fund has reacted to market movements, which is crucial for evaluating its characteristics and performance against objectives.

In contrast, relying on fund holdings documentation or a manager's historical performance does not capture the dynamic interactions with market factors that returns-based style analysis does, and while active fund management strategies may influence performance, they are not the focus of this specific analytical approach.