Just imagine what the world of figure skating would look like if Michelle Kwan were told the only jumps she could make were Salchows. No toe loops. No Lutzes. No Axels. Or consider what professional basketball -- and perhaps pop culture in general -- might look like had Michael Jordan's coach told him the only shots he could take were jumpers. No thunderous dunks. No acrobatic lay-ups. No gravity-defying leaps to the basket.

As remarkable as it may sound, the mutual fund industry seems to be evolving that way. Increasingly, stock funds are being required to hew to a predetermined investing style, often clearly indicated by the fund's name. The name may include a phrase like "midcap value" or "small-cap growth" (cap is short for capitalization, or market value). Sometimes the name includes more-amorphous terms, such as "Capital Appreciation" or "Aggressive Growth," but the fund's prospectus or other literature lays out the specific kinds of stocks it will buy.

This trend has given rise to an ominous-sounding cadre of watchdogs known as the "style police." Typically, these financial cops include investment consultants, financial planners and money managers who use funds. Their mission is to blow the whistle on any fund that doesn't stick to its stated -- or presumed -- style of stock picking. Funds that leave their designated investment territory are accused of "style drift."

This all may sound like inside baseball. At its core, though, the debate addresses the basic philosophy of how stock funds are to be run: Should their managers be required to invest only within the narrow constraints of a so-called style box? Or should they be allowed the freedom to invest in the stocks they believe will deliver the biggest gains, style boxes be damned?

How it got started

The notion of style-box investing is a relatively recent phenomenon. Until the early 1990s, stock-fund managers were guided, for the most part, by the investment objectives in their funds' prospectuses. Pure domestic stock funds were usually classified as growth-and-income, long-term-growth or capital-appreciation (or aggressive-growth) funds. The most famous manager of the 1980s, Fidelity Magellan's Peter Lynch, personified the go-anywhere approach to investing. Lynch sought to achieve Magellan's goal of capital appreciation by investing in big companies when they were attractive or smaller ones when they held more potential. At times, he'd invest heavily in fast-growing technology companies; at other times, he'd load up on sedate, relatively slow-growing savings-and-loan stocks.

The upheaval began in 1992 with Morningstar's introduction of the style-box concept. The style box is actually nine boxes arrayed in a three-by-three grid. The vertical axis represents a stock's size, as measured by its value in the stock market, or capitalization -- small, midsize or large. The horizontal axis depicts whether a fund invests primarily in value stocks (those that are bargain-priced, usually because the underlying companies are growing slowly or have some other problems) or growth stocks (those to which investors award lofty values -- such as high price-to-earnings or price-to-sales ratios -- because of a perception that the underlying companies are of higher quality or are growing at above-average rates). Funds that lie somewhere in the middle of the value-growth axis are considered blend funds.

Around the same time that Morningstar was devising its style boxes, the financial-advice business was mushrooming into a full-fledged industry. But whereas earlier generations of advisers specialized in picking individual stocks and bonds, many in the new generation of money managers understood that picking mutual funds was far easier. So, many newcomers set up shops in which their primary goal would be to assemble mutual fund portfolios for clients.

There was still another development that focused everyone's attention on style. In the old days (before the 1990s, that is), the conventional wisdom was that the most important determinant of investors' results was whether they were in or out of the stock market. Sure, there were periods when big-company stocks did better than small-company stocks, or vice versa, or when foreign stocks beat U.S. stocks, or the reverse. But the markets of the 1990s revealed differences that stunned investors. In 1998, for example, large-cap growth stocks returned 42%, while small-cap value stocks lost 8%. That was a huge divergence for segments within the U.S. stock market (you can get a sense of the way different markets and different styles have performed over the past 20 years by scanning the Callan Periodic Table of Investment Returns at www.callan.com/resource/periodic_table/pertbl.pdf).

MORE: Kiplinger.com | Investing | Mutual Funds

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