There is not one end all, be all method in which one can construct a universe or peer group. One approach is to build universes on fund or SMA performance. For example, one could build his/her universe using Returns-Based Style Analysis (RBSA), R-Squared, or Tracking Error. A second approach could be to base the universes off the reported fund holdings. At Zephyr, we use RBSA to construct our universes with the methodology described below.
Zephyr Universe Methodology
We take all of the broadly diversified funds within a mutual fund or SMA database and run the RBSA style plot for five years. We have pre-defined breakpoints and depending upon where a manager plots relative to the different style corners, we will classify the fund or manager in a universe accordingly. We provide Domestic Equity and Domestic Fixed Income Universes described below:
Domestic Equity Methodology - The nine Zephyr Domestic Equity Universes are:
- large core
- large growth
- large value
- mid core
- mid growth
- mid value
- small core
- small growth
- small value
Each month or quarter, using up to five years of data, the Style Benchmark for each manager is created using cash, the Russell 1000 Growth, Russell 2000 Growth, Russell 1000 Value and Russell 2000 Value. This results in a Value-Growth and Small-Large coordinate graph where we plot the managers in what’s called a style map. They are then categorized into their respective universes from the table below:
2. Domestic Fixed Income Methodology - The 10 Zephyr Domestic Fixed Income Universes are:
- ultra short duration super credit
- short duration super credit
- medium duration super credit
- long duration super credit
- short duration high credit
- medium duration high credit
- long duration high credit
- short duration medium credit
- medium duration medium credit
- long duration medium credit
Each month or quarter, using up to five years of data, the Style Benchmark for each manager is created using the Citigroup Treasury 1-3, Citigroup Treasury 7-10, a custom 50/50 Blend of Citigroup Corporate A 1-3 and Citigroup Corporate BBB 1-3 and a custom 50/50 Blend of Citigroup Corporate A 7-10 and Citigroup Corporate BBB 7-10. This results in a Super-High-Medium Credit Quality and Short-Medium-Long Duration coordinate graph where we plot the managers in a style map. Once again, they are then categorized into their respective universes from the table below:
Does Zephyr offer Universes outside of the Zephyr Universes?
Yes, in addition to Zephyr Universes we also offer category-based universes for Morningstar and Lipper Mutual Funds. You can also request to recieve the Zephyr SMA category-based universes from us here at Zephyr. Finally, you can retrieve other SMA category-based universes for use in StyleADVISOR from the actual provider, such as eVestment.
You can find our universes in StyleADVISOR with “Zephyr” in the description name. Whichever database is in parenthesis determines which funds/SMAs were used to create that Zephyr Universe. If you are looking for category-based universes such as Morningstar, Lipper Mutual Funds or another SMA universe, you can find them in StyleADVISOR without “Zephyr”, but with the providers name in the description.
If you would like additional detailed, information on the Zephyr Universes you can find it here
As a complement to this article, in the near future we will post another article to discuss the practical uses of universes and how StyleADVISOR can demonstrate those uses.