Which of the following is an advantage of returns-based style analysis?

Returns-based style analysis is a method used to evaluate the performance of a portfolio by examining its returns in relation to various benchmark indices. One key advantage of this method is that it aggregates the effects of the investment process.

This approach allows investors to understand how different asset classes or styles contribute to the overall performance of a portfolio without needing detailed information about each individual security. By analyzing returns relative to multiple benchmarks, returns-based style analysis provides insights into the overall strategy employed by the portfolio manager, such as growth versus value investing or small-cap versus large-cap exposure. This holistic view enables investors to make informed assessments about the effectiveness of a portfolio’s investment strategy over a specific period.

In contrast, characterizing individual securities typically requires a different level of analysis focused on fundamentals or intrinsic value rather than aggregated returns. Additionally, while comprehensive financial reports may provide valuable details, they are not a prerequisite for returns-based style analysis. This method does not necessarily depend on extensive historical data as it can be conducted with returns over shorter time frames, although having more data could enhance the analysis.