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Morningstar February Month in Review

Mark LaMonica, CFA  |  28 Feb 2018Text size  Decrease  Increase  |  
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February has been an exciting month at Morningstar as we have introduced a number of new features for our premium subscribers. My team and I are committed to continuing to improve our product in 2018 to help individual investors across Australia reach better financial outcomes. 

New build a portfolio feature

We recently added a new feature to help our premium subscribers with portfolio construction and asset allocation decisions. The Wealth Forecasting Engine (“WFE”) is a sophisticated Morningstar tool that runs at least five hundred simulations of what may happen to a portfolio over a given time-period. We chart the middle band of these simulations to give users a likely range of outcomes. The foundation of the tool are the five model portfolios that make up the Morningstar strategic asset allocation framework and our long-term capital market assumptions. Each of the five model portfolios is based on a unique risk, return and investment horizon and provides our recommended asset allocation across eight asset classes.

A Morningstar Investor understands that asset allocation decisions are a key contributor to overall portfolio returns. In fact, the famous Brinson study first published in 1986, found that over 90% of overall investment returns could be attributed to asset allocation decisions. To fulfil Morningstar’s core mission of helping individuals obtain better financial outcomes, we will continue to improve our support for investors that are seeking guidance on portfolio construction and asset allocation decisions. During March we will be adding the Morningstar Portfolio Construction Guide. The WFE is located on the “Build a portfolio” tab on our homepage and can be found here.   

Additional ETF model portfolios

We have increased the number of ETF model portfolios that we offer our premium subscribers to five. The ETF model portfolios provide a diversified set of ETFs based on Morningstar’s qualitative and quantitative research. Each model portfolio aligns to one of the five different asset allocation models that make up the Morningstar strategic asset allocation framework that is utilised in the WFE. They represent a straight forward way to implement one of the portfolios.

Another simple way to gain exposure to the portfolios is through Morningstar Next. Morningstar Next customers can select the Growth, Balanced and Cautious portfolios as part of initial and ongoing monthly contributions. To learn more about Morningstar Next please visit our website.

Increased commentary on economic moat rating

A key component of Morningstar’s Equity Research methodology is our assessment of the economic moat of the companies that we cover. Companies with an economic moat are able to hold competitors at bay and generate economic profits over an extended period of time. Morningstar assigns one of three economic moat ratings to our coverage universe: none, narrow, or wide. There are two major requirements for firms to earn either a narrow or wide rating: 1) the prospect of earning above average returns on capital, and 2) some competitive edge that prevents these returns from quickly eroding.  A firm must possess a competitive advantage inherent to its business in order to possess a moat.

We have always provided our economic moat rating to premium subscribers but have recently added additional commentary from our analysts explaining the source of the moat. The additional commentary can be found wihin our equity research.

Star ratings

I wanted to provide a reminder that in March we’re planning an important change to our research recommendations on Australian and New Zealand stock and credit securities.

After consulting with many of our clients over the past year, we’ve decided to adopt Morningstar’s global ‘Star Ratings’ system for stocks across all Morningstar Australasia products. This replaces our current system of word-based ‘Buy’ to ‘Sell’ recommendations.

The Star Ratings system represents a forward-looking opinion of a stock’s valuation and is calculated using the same logic as the current word-based recommendations. Our 5-star rating will align with our current recommendations, so that a 1-star rating replaces our Sell recommendation, and a 5-star rating lines up with our Buy recommendation.

As always, I would love to hear feedback on any of our new or existing features and how we can continue to help you reach your investing goals. Please email me at ymw@morningstar.com  

 

Mark LaMonica is the Individual Investor Product Manager in Australia

 

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

is a product manager, individual investor, Australia.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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