September 9, 2021

Morningstar Brings Transparency to Model Portfolios with New Data, Research, and Ratings

New Morningstar research indicates approximately $315 billion of assets follow model portfolios as of June 30, 2021

CHICAGO, Sept. 9, 2021 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today announced its commitment to bring Morningstar's signature ratings, research, and data to investors. As model portfolios continue to gain popularity among investors, Morningstar is shedding light on the rapidly evolving landscape by: 

  • Publishing Morningstar's annual report on the model portfolio landscape; the report finds that the number of options for investors is rapidly growing. Demand is being driven by the greater flexibility and customization that models offer, particularly when it comes to tax management.
  • Doubling the qualitative and forward-looking Morningstar Analyst Rating™ (Analyst Rating) coverage of model portfolios by the end of 2021.
  • Launching the Morningstar Rating™ (or star rating) to model portfolios in the fourth quarter of 2021.
  • Surfacing new data points that provide foundational information on model portfolios, such as assets under advisement, asset allocation targets and ranges, and rebalancing frequency, across Morningstar's product suite.
  • Launching a new 'Model Exchange' functionality to Morningstar Advisor Workstation℠ subscribers, enabling them to research, compare, apply, and subscribe to approximately 2,100 models.

"Morningstar is doing what it did for mutual funds and exchange-traded funds: helping investors and advisors make sense of a plethora of new investment options with the tools and insights to assess whether that investment option is right for them or their clients," said Michael Herbst, director of models and institutional investments for Morningstar. "Models is a space our own Morningstar Investment Management group knows well from their years of making them available to advisors, and as investors demand more personalization, Morningstar is answering the call by putting independent research and data in investors' hands and equipping financial professionals with the means to advise and empower their clients." 

New Research: The Model Portfolio Landscape  
Today Morningstar published the second edition of its Model Portfolio Landscape, a comprehensive report about key trends driving models' growth, the largest model providers ranked by assets under advisement, Morningstar's highest-rated model portfolios, and developments in model portfolio construction, fees, and performance.  

"Our manager research team is doubling down on model portfolios research to provide reliable, useful analysis of model portfolios so investors can make informed investment decisions," said Jason Kephart, strategist for Morningstar's multi-asset and alternative strategies research group, as well as a co-author of the report. "While the model portfolio industry is still in early innings, we are seeing increased flexibility for investors to manage tax liabilities through the use of tax-oriented strategies, and innovation with the rise of model-delivered equity strategies." 

Key takeaways from the report include:  

  • Approximately $315 billion of assets follow model portfolios as of June 30, 2021. This conservative estimate uses data submitted to Morningstar by 28 model providers and only counts what providers can accurately track; many model providers cannot accurately track assets following their paper models or those invested through model marketplaces.
  • BlackRock is the largest provider, with almost $70 billion of assets. The 10 largest providers have around 75% of the overall market share.
  • The number of models available continues to surge. Morningstar collected data on more than 1,000 new models in less than a year with only a modest increase in outreach, which suggests that they're growing fast.

The full report is available here.

Expanded Analyst Coverage of Model Portfolios  
To help advisors navigate the model portfolio landscape, Morningstar began assigning qualitative, forward-looking Morningstar Analyst Ratings on separately managed accounts (SMAs) in 2019 and launched coverage of model portfolios in 2020. Morningstar's manager research team currently covers 43 model portfolio series to provide ratings on over 250 models. These models span 24 asset managers. By the end of 2021, Morningstar will double the number of model portfolio series under analyst coverage.  

Model portfolio Analyst Ratings are available in Morningstar Direct℠, the company's flagship investment research platform for asset and wealth managers. They are also available in Morningstar Advisor Workstation and Morningstar Office℠ to enhance investment research for advisors. 

Launching the Morningstar Rating for Model Portfolios 
Morningstar is assigning the star rating to model portfolios to help investors better sift through the large and growing universe of model portfolios1. The star rating for model portfolios will follow the same core methodology that's used to assign ratings to managed investments in other universes like mutual funds and separate accounts. Under this methodology, Morningstar will assign ratings to model portfolios based on their past risk-adjusted returns versus their category peers.  

Given that model portfolios are hypothetical in nature, Morningstar is adapting the core star rating methodology to ensure that the star rating for model portfolios upholds a high standard for reliability. Specifically, Morningstar will adapt the star rating methodology in three ways: 

  1. Strictly limiting the use of back-tested return data in the risk-adjusted return calculation  
  2. Requiring model providers to submit portfolio holdings data on a quarterly basis  
  3. Requiring model providers to comply with Global Investment Performance Standards (GIPS) or manage at least $10 billion in regulated investment vehicles such as mutual funds  

The methodology is available here and a Frequently Asked Questions document is available here. The ratings will be launched starting at the end of October 2021 on a rolling basis to the following Morningstar products: Morningstar Direct, Morningstar Advisor Workstation, Morningstar Data Services, Morningstar Essentials, Morningstar Fund API, and Morningstar Office.  

Model Portfolios Data
Morningstar's model portfolios data and analytics are designed to help end investors and advisors utilize models more effectively within their portfolios. Most recently, Morningstar continues to survey model providers for information, including assets under advisement, asset allocation targets and ranges, and rebalancing frequency. Morningstar collects model portfolio provider data through Morningstar's central reporting Institutional Data Manager platform. New portfolio providers can access the platform by visiting Morningstar.com and creating credentials. Current providers are able to request new model vehicles and update existing information by following the step-by-step instructions offered by the platform's Help Center.

Other data available includes calculated and surveyed analytics and performance metrics to help asset managers and wealth managers identify industry trends. Portfolio-level metrics and qualitative data enable individual investors and advisors to assess whether a model is right for them or their clients, including whether the strategy has a particular objective such as income-generation, tax-management, or ESG.

Model Portfolios for Advisors 
Morningstar is enhancing advisor solutions to make it easier to compare and utilize model portfolios based on alignment to an investor's objectives. In the fourth quarter of 2021, Morningstar Advisor Workstation will include a 'Model Exchange' capability, providing advisors with detailed research, comparison tools, ongoing tracking, indexing, and report generation for approximately 2,100 models created by third-party model providers. Within the Advisor Workstation Model Exchange, all models will be assigned the newly launched Morningstar Portfolio Risk Score, which measures a portfolio's level of risk. Additionally, enterprise clients of Advisor Workstation can manage and permission their own proprietary models alongside any third-party models, simplifying the planning-to-action process for their advisors. 

Separately, Model Marketplace, part of the Morningstar Office platform for independent registered investment advisers (RIAs), allows advisors to quickly and cost efficiently research third-party investment models, personalize strategies to fit their clients' needs, and initiate trade instructions in one connected workflow. The Model Marketplace provides asset managers a direct connection to share their investment models with independent RIAs. 

Highlighting Model Portfolios Research at the Morningstar Investment Conference 
Join Morningstar Sept. 22-24 for the annual Morningstar Investment Conference at McCormick Place Convention Center in Chicago, or via the digital conference experience. Morningstar will host a session highlighting model portfolios research on Wednesday, Sept. 22 at 1-1:50 p.m. CT.  

Introducing Morningstar's Research on Model Portfolios  
Morningstar's multi-asset manager research team reveals the latest trends in model portfolios, examines best practices for evaluating model portfolios, and highlights its top-rated model portfolios for both hands-off advisors and do-it-yourself advisors looking for a starting point. 

The full conference agenda here. Registration is free for full-time, credentialed media, so please click here and select registration type as "Press." 

Caution Concerning Forward-Looking Statements  
This press release contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations about future events or future financial performance. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue." These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. More information about factors that could affect Morningstar's business and financial results are in our filings with the Securities and Exchange Commission, including our most recent 8-K, 10-K and 10-Q. Morningstar undertakes no obligation to publicly update any forward-looking statements as a result of new information, future events, or otherwise, except as required by law. 

About Morningstar, Inc. 
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $251 billion in assets under advisement and management as of June 30, 2021. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc. 

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar's Manager Research Group's current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund's or separately managed account's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities or a separately managed account investment strategy in this press release should not be considered an offer or solicitation to buy or sell the securities or to invest in accordance with that strategy. 

Morningstar's Investment Management group is a leading provider of discretionary investment management and advisory services. In addition to advisory services, the group's investment professionals build and manage model portfolios for financial advisors in the United States, United Kingdom, Australia, South Africa and India to create strategies that incorporate a wide variety of investment objectives.  The entities within the Investment Management group are authorized in the appropriate jurisdiction to provide advisory services. More information is available here: mp.morningstar.com. 

1 As of June 30, 2021, there were roughly 2,100 models reporting data to Morningstar, a nearly twofold increase from the prior year. 

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Media Contact: 
Sarah Wirth, +1 312 696-6037 or  newsroom@morningstar.com  

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