The return of these value stocks this has turned the performance rankings upside down for the equity funds we compute every month. The top ranking funds for the quarter-ended June 30, 1999, were the bottom raking funds till March 1999. The reasons are not very difficult to trace. All these funds are stacked with cyclical stocks -- some by design like Templeton Growth, others by accident like the UTI funds. By accident, what I mean is that these funds had such a huge position in these stocks that when they were out of favour, they could not get rid of themat any cost.

Should the momentum of cyclical stocks continue, selectivity will become increasingly important. Near-term, leadership within the sector will likely be in the large capitalisation and most liquid stocks. Often we hear phrases like `growth is out of favour' or `the fund managers are switching styles'.

More investment analysts are now beginning to appreciate that a fund's "style" can have a major impact on both its risk and return. Therefore, it is important to understand investment style when building or modifying your portfolio.

First, I explain "style" for equity funds, illustrate how different styles have taken turns leading the market, document how frequently equity funds have tended to switch styles or investors changed their preferences and wrap up with some rules of thumb for how you might incorporate style into your thought process.

Broadly classified, all stocks can be classified into growth and value stocks and based on their capitalisation into large, medium and small stocks.The growth and value investment styles have led the market at different times. Since it is difficult to predict when each style will come out ahead, I recommend diversifying across the two styles. Therefore, you avoid being too heavily invested in either growth or value stocks/funds during a prolonged period where performance may lag.

However, in my opinion one should have a larger allocation to growth than value stocks as they cater to a large market, they are recession proof and independent of economy and political instability. Value funds/stocks have been less volatile than growth funds. Whether looking at the past five, 10 or 15 years, the average value fund exhibited only three-quarters the volatility of the average growth fund.

Funds may `drift' from one style category to another. We found that eight out of every 10 growth funds and nine out of every 10-value fund changed their style over the four-year period studied. However, I must state that most funds do not have a stated style preference,barring the Templeton. Hence, the study was based on our classification of funds into growth and value funds. An even greater shift was seen in the actively managed blend funds, over half of which drifted out of their style during the period. Therefore, it is important to monitor your funds' style categories to ensure they remain consistent.

An index fund will be the most consistent in its style, as the stock selection in an Index gives weightage to market capitalisation, and broad industry representation as well.

It is difficult to predict the staying power of the current rally in cyclical value stocks. Visible improvement in fundamentals is not sufficiently apparent to suggest this rally is sustainable. Besides, the key variables needed for a sustained rally in value stocks are still missing - a booming economy, political stability and competitiveness of cyclical companies.

The right strategy should be to be with a fund, which has a reasonable weightage to value stocks as well, say 65:35 growth andvalue mix respectively. Stay invested and consider a higher allocation to equities for your long-term needs, as equity has proved to be the most rewarding asset class.