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Morningstar May month in review

Mark LaMonica, CFA  |  06 Jun 2018Text size  Decrease  Increase  |  
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As the end of the financial year approaches and troubling revelations from the royal commission continue to make the front pages of newspapers you may be scrutinising your investment portfolio, wondering who you can trust and questioning if you are on track to meet your financial goals. These are all legitimate questions and I wanted to share why I believe Morningstar’s mission of supporting individual investors is now more valuable than ever.

My thoughts on the royal commission and what Morningstar stands for

Incentive structures lay at the heart of almost every financial scandal. Incentive structures that are transparent and linked to investor outcomes are critical to ensure alignment between adviser and investor. The incentive structure for Morningstar Premium is clear – for an annual subscription price we provide access to investment research on more than 650 Australian securities and tools / data to guide investment decision-making. Morningstar’s success hinges on our ability to continually improve the investment outcomes of end investors. This is a huge responsibility. Investment outcomes are more than numbers on a page – they represent the ability to retire, access quality education and care for loved ones. We take this responsibility seriously and embrace the challenge.

I’ve always believed it is hard for anyone to be more invested than me in my own financial outcome. Since university I’ve chosen to be a self-directed investor. This decision has involved a commitment to learn about investing and the time needed to manage my own finances. But being a self-directed investor doesn’t mean I’ve done it alone.

Throughout my own investing journey, I’ve relied on countless resources: from some of the classic investing books, to advice from family and friends, to Morningstar research – well before I started working for the company.

When I’m deciding on a new investment or whether to sell an existing position, I always want to have comprehensive and detailed research as support.

Sometimes I use independent research to inform my decision-making and to help me discover new investments.

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Sometimes the research validates my ideas. In cases where I reach a conclusion that differs from that of the analyst I still find the research critical as it ensures I’ve been rigorous in my analysis. An independent research perspective can play the same role if you use an adviser – inform, validate and ensure the adviser conducts meticulous investment analysis.

Are our research calls always correct? Of course not; nobody is perfect. What I can attest to is that our research teams follow an intellectually honest approach that is independent, clearly articulated and consistent. Would we make more money if we took payments from fund companies to cover their products? Of course we would. Would it be easier to sell our subscriptions if we had more five-star ratings on equities we cover? Absolutely. But doing that would mean breaching our mission, which is to put investors first.

Before outlining some new developments at Morningstar last month, I will finish with a couple of statistics. Our average subscriber pays $5,600 a year for advice and has a $2.8m investment portfolio – given this context, I believe a subscription to Morningstar is a pretty good deal  when it comes to insuring your investment future.

Enhanced portfolio construction guidance

Last month, we strengthened our efforts to give Premium subscribers better guidance with portfolio construction. Asset allocation decisions are crucial to investor outcomes. Studies such as the 1986 Brinson Study, suggest that 90 per cent of the variability of investment returns could be attributed to asset allocation decisions.

We have created the Morningstar Guide to Portfolio Construction to help our Premium subscribers design a portfolio that meets their key goals in life. We provide step-by-step guidance on how to define goals,  calculate the required rate of return to meet specific goals, and  select an asset allocation target and investments.

Lex Hall has started a series of articles in Your Money Weekly (YMW) that focuses on diversification. In his first piece published in the 31 May edition of YMW, Lex  examines the case for investing in asset classes other than Aussie equites – something that many of our subscribers and the Australian investor population at large fail to do. His next article will be in the 8 June YMW edition, and will focus on our international equities. He will follow this up with articles on other key asset classes.

Spotlight on Adam Fleck

Adam heads up our equity research team in Sydney and truly embodies Morningstar values. You can read a little more about Adam in his bio, but I wanted to highlight a recent nabtrade “Your Wealth” podcast that Adam appeared on. Look for episode 24 in which Adam examines the role that valuation plays in investing.

To hear Adam speak about our equity research methodology, you can view a recent Facebook live event Adam and I did together.

Above the Noise

Finally, I wanted to highlight a new free investing newsletter called Above the Noise, which offers practical, unique investing insights to help you—and your family—improve how you invest. Above the Noise features content written by my colleague Jason Prowd who runs our Morningstar Next team. Morningstar Next offers three professionally managed investment portfolios. You can sign up for the free newsletter and access the content on the Morningstar Next website.

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Mark LaMonica, CFA 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.

© 2021 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 'regulated financial advice' under New Zealand law has 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. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. 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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