From clothing and music to home decorating and more, everyone has their own style. So it shouldn’t be surprising that people also tend to gravitate toward the characteristics and objectives of a particular investment style – even if they’re not consciously choosing to follow a specific methodology.

Before considering different investment styles, let’s start by saying one isn’t necessarily better than others. Depending on market, macroeconomic and geopolitical conditions, one style could be more appropriate for certain circumstances, while shifting conditions could favour a different style. Most mutual fund managers invest according to a given style and will adhere to it, making it easier for investors to identify and assess styles when deciding which funds may suit their needs. Investing in a diversified portfolio of funds (such as a fund-of-funds solution), may offer exposure to a variety of complementary investment styles.

5 common styles of investing

1. Growth: This style focuses on companies with expected above-average growth. Such companies are often smaller, innovative and growing quickly as they develop. Growth investors usually seek capital gains as a company’s stock price rises in step with its growth, and may be drawn to rapidly evolving industries where outsized growth appears more likely (e.g., health care, technology). Growth stocks can be highly volatile and carry significant risk, but the return potential is enticing.
   
   
2. Value: This style is almost the opposite of growth. It often focuses on established companies that may offer greater earnings stability (and possibly dividends) in lieu of strong growth prospects. Value investors are more price sensitive than their growth counterparts, seeking to buy shares of a company at what they consider a “discount” to intrinsic value, and then waiting for the market to recognize this company’s true value so they can eventually sell at a higher price.
   
   
3. Momentum: This style looks to capitalize on a positive trend. Maybe a company has introduced a great product that’s poised to dominate its market, or a certain industry is all the rage because of prevailing conditions (e.g., conflict in the Middle East could send oil prices skyrocketing as supply is disrupted). Momentum investors like to “strike while the iron is hot” and hope that market euphoria will keep certain stock prices rising.
   
   
4. Contrarian: This style focuses on investing in a manner that goes against the current flow of market sentiment. It relies on exploiting patterns of human behaviour where emotions like fear or greed may cloud a person’s decision making, causing stocks to be mispriced. For instance, if the market is negative on a given stock and bids its price far lower than warranted, a contrarian might swoop in and buy, hoping common sense will prevail and the stock will revert to a reasonable price.
   
   
5. ESG: A style gaining popularity is investing according to environmental, social and governance (ESG) considerations. ESG investors prioritize factors like a company’s policies re: carbon emissions, climate change, sustainability, etc. They also monitor employment practices, human rights and other factors that impact social well being. Regarding governance, ESG investors analyze things like executive compensation and composition of a company’s board; if dissatisfied, ESG investors may challenge companies at private/public meetings or through proxy voting.

Of course there are other styles of investing as well, but these five are quite common. Your unique financial objectives, investment time horizon and risk tolerance could make certain styles more suitable for you than others. Consult with an Alterna Advisor to see what investment styles might fit well in your portfolio.