Think Outside the Style Box with Innovation Strategies

Key takeaways

Many innovation-focused growth equities share specific qualities that lie outside a traditional growth style box, in a specialized investment category.
In fact, this “10th style box” operates with different investment logic.
Blending durable, traditional growth with a dedicated innovation strategy may help investors capture potential upside and maintain a holistic approach to growth equities.

Since the early ’90s, investors have been using the equity style box, first introduced by Morningstar, to think about their equity allocations in terms of market capitalization and style.

Figure 1: Nine traditional equity investment styles

With the explosion of the technology sector and proliferation of artificial intelligence (AI), we’d argue there is a 10th style box to consider. This is a subset of the growth universe, with a specific return and volatility profile: technological innovators. These stocks can trade on a different set of metrics compared with much of rest of the growth universe.

Innovation stocks follow a different set of rules

Performance among large, growth-oriented tech companies has been outstanding: over the trailing 12-month period, technology-focused funds have gained roughly 34%, while traditional large-cap growth funds have returned 12%. But the performance gap isn’t the only thing that sets the 10th style box apart. There is evidence of a more significant difference: the investment logic. Typical large-cap growth equities and this innovation-focused cohort are evaluated on almost opposite terms.

It’s important for investors to recognize and understand these distinctions. While 10th-style-box equities have demonstrated stronger performance than their peers recently, we caution investors against putting all their eggs in one basket, no matter how innovative that basket may be.

The growth index is quietly changing

The 10th style box isn’t just a way of organizing investment opportunities. It represents a fundamental shift in the investable universe. Changing benchmarks speak to this. Since January 2021, technology exposure within the Russell 1000® Growth Index has climbed from about 38% to 54%. And what constitutes “technology” in indices has shifted even more dramatically.

For example, semiconductors, which are a historically cyclical industry with a large footprint in value indices, now carry a significantly heavier weight in growth benchmarks. Meanwhile, software, representing a stable, high-margin, cash-flow-generative segment of the growth market, has begun to fade. The AI narrative is at the heart of this current dynamic.

Figure 2: Index exposure rising in semiconductors, fading in software

Source: Russell 1000 Growth Index as of June 30, 2026. For illustrative purposes only.

It’s worth noting that, thus far, sentiment and perception – not fundamental deterioration – have driven the decline in software. Why does this matter? If AI infrastructure favorites like semiconductors hit turbulence, investor capital may rotate back into traditional high-quality growth. And many software companies remain a high-quality growth opportunity from a fundamental perspective, despite the shift in investor sentiment.

This will be important to bear in mind as the current innovation cycle continues. AI is a revolutionary technology and significant investment opportunity, and it’s here to stay. But it’s not the only opportunity.

We’ve seen the AI narrative come under strain recently. Some enterprise customers have pulled back on AI spending, having exhausted annual budgets early. The takeaway here is that while the distinct opportunity among innovation-focused equities has had a meaningful effect on markets, it’s still just one piece of a larger puzzle.

How to approach innovative equities in the 10th style box

This highly innovative subset of growth companies has taken on a life of its own, enticing investors for fear of missing out. Rather than choosing between traditional growth and innovation, a pragmatic response is to strike a balance between the two, based on individual investment goals and risk tolerance.

An active approach can be of service here. Maintaining a core allocation to durable, traditional growth can help preserve the compounding, lower-volatility ballast that anchors a portfolio. Layering in a distinct, innovation-focused sleeve allows investors to participate in the potential opportunities of new technology like AI, but without becoming overly exposed to vulnerabilities in the narrative. Constructing an effective innovation-focused allocation may benefit from deep expertise and special attention.

Figure 3: Innovation-focused growth equities – the 10th style box

In summary

Thinking about innovation-oriented growth stocks as a distinct 10th style box can help investors take a more holistic approach to their equity allocations. But the bottom line is this: thinking both inside and outside the traditional style box could help investors pursue attractive growth opportunities while maintaining a balanced, risk-aware view.

Think Outside the Style Box with Innovation Strategies

Key takeaways

Figure 1: Nine traditional equity investment styles

Innovation stocks follow a different set of rules

The growth index is quietly changing

Figure 2: Index exposure rising in semiconductors, fading in software

How to approach innovative equities in the 10th style box

Figure 3: Innovation-focused growth equities – the 10th style box

In summary

Disclosures

Policies

Innovation stocks follow a different set of rules

The growth index is quietly changing

Figure 2: Index exposure rising in semiconductors, fading in software

How to approach innovative equities in the 10th style box

Figure 3: Innovation-focused growth equities – the 10th style box

In summary

Disclosures

Policies

​

Think Outside the Style Box with Innovation Strategies

Key takeaways

Figure 1: Nine traditional equity investment styles

​

Innovation stocks follow a different set of rules

​

​

The growth index is quietly changing

​

Figure 2: Index exposure rising in semiconductors, fading in software

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​

How to approach innovative equities in the 10th style box

​

Figure 3: Innovation-focused growth equities – the 10th style box

​

​

In summary

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​

Innovation stocks follow a different set of rules

The growth index is quietly changing

Figure 2: Index exposure rising in semiconductors, fading in software

How to approach innovative equities in the 10th style box

Figure 3: Innovation-focused growth equities – the 10th style box

In summary

Disclosures

Policies