Growth is the new core: Why investors may need to reassess portfolio risk

Key takeaways:

• In August 2024, Morningstar shifted its Style Box^TM methodology, resulting in many former “growth” stocks being reclassified as “blend” and “blend” stocks now designated as “value.”
• As a result, “core” holdings now skew toward higher beta,¹ higher valuations and lower dividend yields, which could lead some investors with core equity exposure to underestimate portfolio risk.
• To recalibrate risk exposure to the previous core profile, investors may want to allocate more to strategies that focus on high-quality, resilient business models and a modestly lower beta profile.

Taking a closer look at core

As the largest market in the world, US equities often hold a prominent place in global indexes and investor portfolios. In fact, as of March 31, 2025, US equities made up over 50% of total net assets in the United States. Among US equity holdings, US large blend funds and exchange-traded funds (ETFs) accounted for more than half of all assets, totaling over US$8 trillion. This stands to reason, as investors aiming to tap into the US market often prefer broad exposure to core/blend, liquid, large-cap companies.

But here’s the twist: What if those “blend” assets aren’t as “core” as we thought? How might this shift an investor’s perception of portfolio risk? We believe Morningstar’s changes to its style calculations last summer merit further evaluation. Recent market volatility might make this a good time to reassess portfolio risk.

The Style Box^TM

Back in 1992, Morningstar introduced its iconic nine-grid Style Box, designed around two key axes: size and style (Exhibit 1). Morningstar assigns each company to a style box based on a proprietary algorithm. The placement of a fund or index within a style box is based on aggregating the weighted-average style scores of the underlying holdings.

Fast forward to today, and these boxes have become the go-to tool for categorizing funds into easily digestible categories. By pinpointing where a security lands within the Style Box, investors can make informed assumptions about risk and return factors, paving the way for a well-diversified portfolio.