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| | | | | ETF Portfolios | | | The diversified ETF portfolios from Morningstar Investment Services help advisors deliver cost-effective investment options with tax benefits to their clients. Using a “core and explore” process of investing, each portfolio aims to provide the best of both worlds, keeping underlying ETF expense ratios low and increasing tax efficiencies while adding value in security selection. Portfolios are developed and actively managed to meet client risk and return objectives. | |
| | | ETF Selection: Applying the “core and explore” investment process | | | | | |
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| | | At the heart of each portfolio is a selection of core positions, which provide efficient and low-cost exposure to broad asset classes. These investments serve to anchor the portfolio by providing exposure to asset classes represented in our strategic asset allocation. Explore positions are added to track narrower segments of the market, opening portfolios to undervalued sectors, while still benefitting from controlled expenses. | | | | | Proprietary methodology: Evaluating equity fundamentals | | | | | |
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| | | Morningstar Investment Services determines explore positions based on a proprietary ETF rating methodology. This methodology leverages data from Morningstar, Inc. equity research to grade ETFs on three broad factors—valuation, fundamentals, and cost—with valuation representing the most important component. Equity analysts from Morningstar, Inc. evaluate individual stocks and use qualitative research to calculate an ETF’s weighted valuation based on its underlying holdings. This helps identify ETFs with holdings that are trading at attractive levels relative to their fair values as assessed in Morningstar, Inc. research. | | | | | Portfolio construction: Planning for client risk | | | | | |
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| | | Morningstar Investment Services applies its portfolio management expertise to construct portfolios primarily suited to a client’s risk profile. The portfolios are managed within the context of a benchmark strategic asset allocation. An asset class review process guides decisions as to which securities to over- or underweight. After analyzing the fundamental characteristics of each ETF, portfolios are built and maintained against a benchmark for long-term, expense-managed performance. | | | | | Active management: Monitoring and adjusting portfolios | | | | | |
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| | | To stay aligned with client objectives, portfolios are actively managed and adjusted to take advantage of key market opportunities. The Morningstar Investment Services team is sensitive to cost and strives to keep a low-turnover approach whenever possible. Throughout the process, advisors can receive reports on their clients’ portfolios and monitor accounts. | | | | |
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| The Morningstar Investment Management division is a division of Morningstar and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, all registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. Morningstar Managed Portfolios are offered by Morningstar Investment Services, Inc. Portfolios offered by Morningstar Investment Services are intended for citizens or legal residents of the United States or its territories and can only be offered by a registered investment advisor or investment advisor representative.
ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value (NAV) will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value.
Because ETFs are not actively managed, their value may be affected by a general decline in the U.S. market segments relating to their underlying indexes. Similarly, an imperfect match between an ETF’s holdings and those of its underlying index may cause its performance to not match the performance of its underlying index. Like other concentrated investments, an ETF with concentrated holdings may be more vulnerable to specific economic, political, or regulatory events than an ETF that mirrors the general U.S. market. | |
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