Median Market Capitalization
The median market capitalization of a fund's equity portfolio gives you a measure of the size of the companies in which the fund invests. (Market capitalization is calculated by multiplying the number of a company's shares outstanding by its price per share.) We use a trimmed mean to calculate a fund's median market cap. First, we rank the common stocks in a fund's portfolio from highest to lowest based on their market capitalizations. Next, we identify the stocks that fall into the middle quintile of the portfolio. We then calculate the average-weighted market cap of the stocks in this middle quintile. The result is the fund's median market cap. The advantage of using a median rather than an average is that the median is not disproportionately affected by one or two extremely large-cap or small-cap holdings.

Price/Earnings
The price/earnings (P/E) ratio of a fund is the weighted average of the P/E ratios of all the stocks in a fund's portfolio. The P/E ratio of a company, which is a comparison of the price of the company's stock to its trailing 12-month earnings per share, is calculated by dividing these two figures. A low P/E indicates that the market has less confidence that the company's earnings will increase; however, investors may also believe such stocks have an overlooked or undervalued potential for appreciation.

Price/Cash Flow
The price/cash flow (P/CF) ratio of a fund is the weighted average of the P/CF ratios of all the stocks in a fund's portfolio. The P/CF ratio is one of major measures of a company's stock price relative to its financial performance. A company's P/CF ratio is calculated by dividing the market price of its outstanding stock by the company's operating cash flow, and then adjusting for the number of shares outstanding. The P/CF reveals the amount of money an investor is willing to pay for a dollar of cash generated from a company's operations. The P/CF, therefore, indicates the ability of a business to generate cash and can be a gauge of liquidity and solvency.

 Morningstar StyleBox

The Morningstar style box is a nine-square grid that gives investors a quick and clear picture of a fund's investment style. Rather than by each fund's self-proclaimed investment objective, the style box classifies funds by focusing on two elements: size along the vertical axis and by value-and-growth characteristics along the horizontal axis. Morningstar uses the market capitalization as the basis to define the stocks within a mutual fund portfolio as large cap, medium cap or small cap. By the same token, the stock's characteristic will serve as the basis to define a particular portfolio as value, balanced or growth.

Rather than using a fixed number of "large cap" or "small cap" stocks, Morningstar uses a flexible system that isn't adversely affected by overall movements in the market. World equity markets are first divided into seven style zones:

• United States
• Latin America
• Canada
• Europe
• Japan
• Asia ex-Japan
• Australia/New Zealand

The stocks in each style zone are further subdivided into size groups. Giant-cap stocks are defined as those that account for the top 40% of the capitalization of each style zone; large-cap stocks represent the next 30%; mid-cap stocks represent the next 20%; small-cap stocks represent the next 7% and micro-cap stocks represent the smallest 3%. For value-growth scoring, giant-cap stocks are included with the large-cap group for that style zone, and micro-caps are scored against the small-cap group for that style zone.

The scores for a stock's value and growth characteristics determine its horizontal placement. There are five value factors and five growth factors including forward looking and historical-based measures. The weighting distribution is shown in table one. Such approach is more flexible instead of using the median value to define the stock size.

Table one: 10 factors determining Value-Growth

Value scores and weightings		Growth scores and weightings
• Price/Projected Earnings	50.00%	• Long-term Projected Earnings Growth	50.00%
• Price/Book	12.50%	• Book value growth	12.50%
• Price/Sales	12.50%	• Sales growth	12.50%
• Price/Cash flow	12.50%	• Cash flow growth	12.50%
• Dividend Yield	12.50%	• Historical earning growth	12.50%

The five value and five growth characteristics for each individual stock are compared to those of other stocks within the same scoring group (groups based on style zone and size, e.g. Europe large-caps). Stocks are then assigned Overall Value and Overall Growth scores based on the ten factors. If either growth or value is dominant, the stock is classified accordingly. If the scores for value and growth are similar in strength, the stock is classified as "core."

A stock fund or portfolio is an aggregation of individual stocks and its style is determined by the style assignments of the stocks it owns. Style Box assignments for portfolios are based on the asset-weighted average of the style and size scores of the underlying stocks. Few or no portfolios contain only stocks with extreme value-growth orientations, and both value and growth managers often hold core stocks for diversification or other reasons. Therefore, for portfolios, the central column of the Style Box represents the "blend" style (a mixture of growth and value stocks or mostly core stocks).

The Morningstar Style Box helps investors construct diversified, style-controlled portfolios based on the style characteristics of all the stocks and funds included in that portfolio. In addition, investors can also compare a specific fund across different time intervals. If there exists a change, it means the fund manager's investment strategy has been changed.

 Asset Allocation

% Cash
This data point identifies the percentage of the fund's net assets held in cash. Cash encompasses both actual cash and cash equivalents (fixed-income securities with a maturity of one year or less) held by the portfolio plus receivables minus payables. Negative percentages of cash indicate that the portfolio is leveraged, meaning it has borrowed against its own assets to buy more securities or that it has used other techniques to gain more than 100% exposure to the market.

% Other
Other includes preferred stocks (equity securities that pay dividends at a specific rate) as well as convertible bonds and convertible preferreds, which are corporate securities that are exchangeable for a set amount of another form of security (usually common shares) at a prestated price. Other also may denote holdings in not-so-neatly-categorized securities, such as warrants and options.
 

Total Number of Stock Holdings
Definition
Denotes the total number of equity securities in a fund's portfolio. This number can be quite useful for gaining greater insight into the portfolio's diversification.

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