Morningstar Investments Overview


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Morningstar Investment Services Overview

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Morningstar Investments Overview

  1. 1. Morningstar Investment Services Mike Reeves, Regional Director × Morningstar Managed Portfolios 404-277-5744 <#>
  2. 2. Morningstar Investment Services Third Party Asset Manager: Mutual Fund Portfolios ETF Portfolios Stock Portfolios Stock/ETF Portfolios 2 Morningstar Managed Portfolios
  3. 3. Morningstar Investment Services Turnkey Investment Management Solution Proposal generation Investment Policy Statement Reporting: statements, asset allocation reports, snap shots Investment Management Investment Analysis: Portfolio Compare, Monte Carlo Simulator 3 Morningstar Managed Portfolios
  4. 4. Morningstar Investment Services What we bring to the table: Independence Experience Reach Resources Access 4 Morningstar Managed Portfolios
  5. 5. Our Philosophy × We invest for the long-term × We are independent thinkers × We employ a disciplined, consistent investment process × We believe in active management × We are sensitive to costs and taxes × We invest our clients’ money as if it were our own × We communicate in a timely and candid fashion For Advisor use only. Not for public distribution. 5 Morningstar Managed Portfolios
  6. 6. Why some advisors utilize a Turnkey Asset Management Program? × Access to consistent well-defined investment management × Active portfolio construction and risk management × Sharing of fiduciary responsibility × Ability to create operational efficiencies and deliver a differentiating client experience on a repeatable basis × Create capacity to serve clients better, Time Management × Focus on your strength & resources × Build value in practice 6 Morningstar Managed Portfolios
  7. 7. TAMP statistics ► TAMP Assets have grown significantly with $200B+ today versus just $4B in 1994 TAMP users Non-Users ► Worry about delivering high-quality investment management products and services 5% 75% ► Anxious about market volatility 23.6% 65.2% ► Dealing with compliance and regulatory issues 39.8% 61.7% Source: CEG Worldwide (Financial Planning) 7 Morningstar Managed Portfolios
  8. 8. Our Mutual Fund Portfolios 8 Morningstar Managed Portfolios
  9. 9. Our portfolios at a glance Asset Allocation Series aims to meet Retirement Income Series is designed Focused Allocation Series provides your needs at various life stages with to generate a cashflow stream that will exposure to a specific area of the capital different risk profiles and return last over a client’s expected time horizon markets, alternative investments, and objectives. These complete portfolio and protect against the risk of clients global opportunities. solutions include multiple asset classes, outliving their assets investment styles, and managers. The information displayed is for illustrative purposes only. It should not be used to assess the exact risk/return relationship between portfolios. No guarantees can be given about future performance. 9 Morningstar Managed Portfolios
  10. 10. Team of investment professionals focused on you Morningstar Financial Advisor Investment Services Analyzes your current financial situation Determines target asset mix × ► Assists in determining your risk/return × Evaluates fund performance data to ► profile peer group and benchmark Helps you select the appropriate portfolio × Analyzes, selects, and monitors fund ► Monitors performance relative to your managers × goals and objectives Creates and constructs portfolios ► Reviews changes in your circumstances × Reallocates and rebalances portfolios ► 10 Morningstar Managed Portfolios
  11. 11. Our Investment Management Process Risk Portfolio Asset Allocation Fund Selection Management Construction Dynamic Asset Allocation Fund Evaluation System Diversified Portfolios Maintain Risk Profile Strategic Allocation Quantitative Analysis Portfolio Level Monitor Sets long-term risk and Performance analysis Holdings based analysis Managers return profile Risk metrics Manage to target risk Portfolio positioning Diversify across multiple Run screens Fund interaction/overlap Risk factors asset classes Qualitative Due Diligence Fund Level Adjust Tactical Overlay Interview managers Tailor fund to strategy Rebalance accounts Over/underweight relative Peruse SEC filings Contribution to portfolio Top-down adjustments to strategic allocation On-site visits risk and expenses Fund specific changes Valuation sensitive Evaluate stewardship 11 Morningstar Managed Portfolios
  12. 12. Program benefits × Access to full universe of funds × Portfolio management integrity × Recognized, trusted name × Scalable & Repeatable Investment process for Advisors × All the resources of Morningstar to work for you & the client × Simple communications × Customized client management × Responsive service team × Access to the Investment Team 12 Morningstar Managed Portfolios
  13. 13. Our Absolute Return Portfolio Allocation Long Equity, 7 Cash, 10 Fixed Income, 10 Commodities, 5 High Yield, 4 Merger Arbitrage, 6 Hedged Equity, 14 Convertible Arbitrage, 16 Long Short, 30 Based on recent allocations to funds that employ these strategies and positioning and may change over time. 13 Morningstar Managed Portfolios
  14. 14. Building Blocks for an Absolute Return Allocation × Lower Volatility × Tighter return spectrum × Lower Beta vs. S&P 500 × Low correlation to the broad markets Absolute Return Portfolio has been able to deliver: × 80% of the upside of S&P 500 × 40% of the Downside of S&P 500 14 Morningstar Managed Portfolios
  15. 15. Alternative Strategies Convertible Arbitrage: Take long positions in convertible bonds and short × underlying common stock. Neutralizes portfolio from beta or equity market risk, while income from coupons on convertibles and short interest credit are primary sources of returns. Covered Call Writing: Designed to generate income from writing call options × against a basket of long equity positions. May also use put options to provide further downside protection. Long-Short: Take long positions in stocks that manager believes will increase in × price while shorting stocks manager believes are overvalued and will decline in price. Short positions lower beta of portfolio and benefit from down market environments. Merger Arbitrage: Buy shares in the target company of an announced acquisition, × which will tend to sell at a slight discount to the takeover price due to uncertainty regarding the deal closing. Hedge position through use of options or shorting acquirer. 15 Morningstar Managed Portfolios
  16. 16. Our Retirement Income Series: balancing income withdrawals and long-term growth Retirement Income Long Range Recommended Time Horizon in Retirement: 20+ Years Target Distribution Rate: 4% Retirement Income Mid Range Recommended Time Horizon in Retirement: 10-20 Years Target Distribution Rate: 5% Retirement Income Short Range Recommended Time Horizon in Retirement: 2-15 Years Target Distribution Rate: 6% 16 Morningstar Managed Portfolios
  17. 17. Mutual Fund Portfolio Pricing Schedule Mutual Fund Portfolios Up to $500,000 Next $500,000 Next $1MM Over $2MM Morningstar Investment Services 0.40% 0.35% 0.30% 0.20% Advisory Firm 1.10% 1.05% 1.00% 0.90% Total Annual Fee 1.50% 1.40% 1.30% 1.10% × Account Minimum $50,000 × Client fee does not include the mutual funds’ expenses × Advisor fee can be discounted in 5 bps increments 17 Morningstar Managed Portfolios
  18. 18. 18 Morningstar Managed Portfolios
  19. 19. Our ETF Portfolio Line URN T Conservative Income and Moderate Growth Aggressive RE Growth Growth Growth RI S K The information displayed is for illustrative purposes only. It should not be used to assess exact spacing between portfolios. No guarantees can be given about future performance. For Advisor use only. Not for public distribution. 19 Morningstar Managed Portfolios
  20. 20. The Best of Both Worlds All the Advantages of ETFs + Active Management For Advisor use only. Not for public distribution. 20 Morningstar Managed Portfolios
  21. 21. A “Core and Explore” Approach Explore Growth Financial Health- Core care Total Stock Energy Foreign Cash Retail Bond TIPS For Advisor use only. Not for public distribution. 21 Morningstar Managed Portfolios
  22. 22. Sample Portfolio Growth ETF Portfolio Holdings Ticker Weighting Exp Ratio Vanguard Total Stock Market ETF VTI 28% 0.07 Vanguard FTSE All-World ex-US ETF VEU 18% 0.25 Core Vanguard Total Bond Market ETF BND 13% 0.11 Money Market 3% 0.48 FMOXX Vanguard Growth ETF VUG 7% 0.11 iShares S&P Global 100 Index IOO 7% 0.40 Financial Select Sector SPDR XLF 6% 0.24 Explore XLV Health Care Select Sector SPDR 0.24 5% SPDR S&P Oil & Gas Exploration & Prod XOP 5% 0.35 SPDR S&P Retail XRT 5% 0.35 iShares Lehman TIPS Bond TIP 3% 0.20 Portfolio Blended Expense Ratio 0.20 23 Morningstar Managed Portfolios
  23. 23. ETF Rating Methodology Morningstar Price to Fair Value Valuation × Price multiples: P/E, P/B, P/CF, P/S, Forward P/E × Fundamentals Morningstar growth, profitability, business risk scores × Costs Expense ratio × Bid/ask spread × Index Construction Diversification × Methodology Weighting methodology × 24 Morningstar Managed Portfolios
  24. 24. Valuation Example SPDR S&P Retail (XRT) Morningstar Price/ Name Weighting % Price Fair Value Fair Value Office Depot 2.0% $14.43 $32.00 0.45 Chico’s 2.0% $9.95 $18.00 0.55 Petsmart 1.6% $23.14 $38.00 0.61 Macy’s 1.8% $24.93 $38.00 0.61 Walgreen 1.6% $36.00 $50.00 0.72 Staples 1.8% $22.96 $30.00 0.77 Borders Group 1.8% $10.29 $26.00 0.39 Portfolio 0.73 Takeaway: XRT was recently trading at a 27% discount to fair value × Source: Morningstar Direct; portfolio weightings as of Jan. 31, 2008; price, fair value data as of February 20, 2008. For illustrative purposes only; not intended to be an offer or recommendation to buy/sell the above securities 25 Morningstar Managed Portfolios
  25. 25. Benefits of ETFs × Transparency of price × Tax efficiency × Passive diversification × Great tool for implementing asset allocation strategies × Protection against cash drag × Cost advantages 26 Morningstar Managed Portfolios
  26. 26. Competitive Fee Structure ETF Portfolios First $1MM Next $4MM Thereafter Total Fee 1.41% 1.35% 1.30% Morningstar Investment Services Fee* 0.31% 0.25% 0.20% Advisory Firm Fee 1.10% 1.10% 1.10% $100,000 account minimum (will accept accounts as low as $50,000 with minimum annual fee of $310) × Client fee does not include the underlying ETF’s expenses × Advisor fee can be discounted in 5 bps increments × *Does not include fees/commissions associated with executing transactions nor the internal expenses of exchange-traded funds. It also does not include the advisory fee. Additionally, this fee covers costs associated with middle and back-office services such as a trading infrastructure and Participating Client accounting and reporting. 27 Morningstar Managed Portfolios
  27. 27. 28 Morningstar Managed Portfolios
  28. 28. Our Stock Portfolios at a Glance × Customized portfolio of individual securities × Areas of focus: Global Equity, Growth, Value, Small-cap, Mid-cap, Large-cap, Foreign, Conservative Equity, Growth Equity, Equity Income × Enables advisor to tailor portfolio to client needs Accommodate preference for restrictions on sector, industry, or individual stock × exposures Can add Fixed Income ETF’s or Bond mutual funds to balance out the portfolio × Advisor can customize asset allocation between Stocks/fixed income × × Accommodate current client holdings × Client can transfer existing holdings for discretionary, tax-sensitive management × Portfolio can be built around client’s other holdings × Actively managed to achieve added value Efficient trading and cost management × For Advisor use only. Not for public distribution. 29 Morningstar Managed Portfolios
  29. 29. Select Stock Baskets Portfolios Broad Market Global Equity Market Capitalization Large Cap Mid-Cap Small-Cap Composite Style Value & Core Growth & Core Foreign Foreign Stocks traded in the U.S. Advisor/Client can elect further customization by requesting Fixed Income ETF’s × 30 Morningstar Managed Portfolios
  30. 30. Strategist Stock Baskets Portfolios Conservative Equity Tortoise Portfolio Growth Equity Hare Portfolio Equity Income Dividend Portfolio Portfolios with minimum of $100,000 ×Model can elect further customization by requesting Fixed Income ETF’s to balance out ×Advisor the portfolio. As long as the Equity position meets the minimum. can elect restrictions on sector, industry, or individual stocks ×Advisor 31 Morningstar Managed Portfolios
  31. 31. 32 Morningstar Managed Portfolios
  32. 32. Morningstar Stock Research: Focus and key tenets Look for superior businesses that trade at discounts to our fair value estimate × Wait for the “Fat-Pitch” × Look for wide-moat companies × Always, always have a margin of safety × Don’t be afraid to hold relatively few stocks (25-30) × Find great companies at a discount and don’t trade very often × Free cash flow is what matters, not reported earnings 33 Morningstar Managed Portfolios
  33. 33. Economic Moats Every stock we cover receives an Economic Moat rating, which is our assessment of × the strength of the company’s competitive position. We assume that all firms face competitive pressures that, over time, force down × above-average returns on invested capital. Companies with the ability to withstand the competition for very long time receive × Wide Moat ratings, companies with a moderate ability to withstand competition receive Narrow Moat ratings, and companies without meaningful competitive advantages receive No Moat ratings. Moat ratings serve two important functions: × × Communicate overall quality of firm to investors. Wide Moat firms are more likely to be great long-term holdings; No Moat firms are more likely to bear close watching. × An input to valuation model – the wider the moat, the higher the fair value. (Assuming similar growth rates and capital needs.) Equity Research Services Provided by Morningstar, Inc. For Advisor use only. Not for public distribution. 34 Morningstar Managed Portfolios
  34. 34. Morningstar Stock Research: Ratings × FairValue estimate × Moat rating (Wide, Narrow, No-moat) × Uncertainty Rating: Low, Medium, High, Extreme × Stars Rating: 5-4 stars trading at a discount to our fair value 3 stars trading at/around Fair value 1-2 stars trading at a premium to our fair value 35 Morningstar Managed Portfolios
  35. 35. From Analyst Valuation to the Morningstar Rating for Stocks 36 Morningstar Managed Portfolios
  36. 36. Morningstar’s Breadth of Coverage Analyst coverage: × More than 130 analysts × Covering more than 2,000 stocks × In 130 industries × In nearly 50 countries × 450 firms based outside the U.S. × Extensive coverage across market cap: × 465 large-cap stocks × 750 mid-cap stocks × 920 small-cap stocks × 37 Morningstar Managed Portfolios
  37. 37. Global Coverage Regional Coverage North America 1847 Australia/New Zealand 251 Asia 109 Europe 124 Latin America 61 Middle East/Africa 22 2414 38 Morningstar Managed Portfolios
  38. 38. Stock Valuations This graph shows the price to fair value of the median stock in Morningstar, Inc.’s stock coverage universe All-time High Current 52-Wk High All-time Low Dec. 31, 2004 Jan. 9, 2009 Dec. 26, 2007 Nov. 20, 2008 1.14 P/FV 0.75 P/FV 0.94 P/FV 0.55 P/FV For illustrative purposes only. Source: Past performance is not a guarantee of future results. Data as of Jan.9, 2009. See important disclosures in the Appendix. 41 Morningstar Managed Portfolios
  39. 39. Investment Approach “The Stock market is a no-called strike game. You don’t have to swing at everything----you can wait for your pitch” Warren Buffett 42 Morningstar Managed Portfolios
  40. 40. Clear Pricing Schedule Select Stock Baskets Portfolios First $1MM Next $4MM Thereafter Morningstar Investment Services 0.55% 0.50% 0.45% Advisory Firm 1.10% 1.10% 1.10% Total Annual Fee 1.65% 1.60% 1.55% Account minimum: $100,000 for Strategist Series (Tortoise, Hare, & Dividend) × Account minimum: $250,000 Select Custom Stock Baskets × Client fee does not include transaction costs associated with custody/clearing × Advisor fee can be discounted in 5 bps increments × 43 Morningstar Managed Portfolios
  41. 41. Tools and Resources 44 Morningstar Managed Portfolios
  42. 42. Comprehensive web platform for advisors 45 Morningstar Managed Portfolios
  43. 43. Client presentation tools (Samples) Proposal Client Overview Client Profile 46 Morningstar Managed Portfolios
  44. 44. Advisor information tools (Samples) Quarterly Commentary Monthly Portfolio Reports 47 Morningstar Managed Portfolios
  45. 45. Helping advisors help their client’s × Illustration tools × Monte Carlo Simulations × Portfolio Comparison × Market educational pieces × Direct communication × Client write-ups and calls × X ray and snapshot reports, individual performance information 48 Morningstar Managed Portfolios
  46. 46. Your Morningstar Investment Services Team Mike Reeves, Regional Director 404-277-5744 Sean Klock, Regional Consultant 877-626-3224 ext. 8 Stephen Winchell, Service Consultant 877-626-3227 49 Morningstar Managed Portfolios
  47. 47. 50 Morningstar Managed Portfolios