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Morningstar Adds Sophisticated Asset Allocation Functionality to Morningstar Direct Platform for Institutions

Allows investors to create asset allocation strategies that account for “fat tails” and are optimized to mitigate downside risk

CHICAGO, July 11, 2011—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, has added sophisticated asset allocation and forecasting functionality to Morningstar Direct(SM), a web-based global investment analysis platform for institutional investors. Based on years of pioneering research from Morningstar and its wholly owned subsidiary, Ibbotson Associates, Inc., a world leader in asset allocation, these new tools allow investors to create optimal asset allocation strategies that take into account “fat-tailed” return distributions and measure downside risk.

Mean-variance optimization (MVO) has been the standard for creating efficient asset allocation strategies for more than half a century and has become synonymous with Modern Portfolio Theory. But MVO is not without its shortcomings. Traditional MVO cannot take into account “fat-tailed” or extreme asset class return distributions, which better match real-world historical asset class returns. This framework is also limited by its ability to only optimize asset mixes for one risk metric (standard deviation) and one reward metric (arithmetic return).

The new asset allocation capabilities in Morningstar Direct allow users to choose from a number of return distribution assumptions to model asset class behavior, including traditional bell-curve shaped return distributions as well as “fat-tailed” and skewed distributions. Users can then use scenario-based optimization to create optimal asset allocation strategies. They can elect to create strategies that will produce the highest expected return either for a given level of volatility or for one of several downside risk measures.

“As the markets have shown—and reminded us most harshly again in 2008—real-life finance is often more complex than the traditional mathematical models used for portfolio optimization and forecasting,” said Xiaohua Xia, president of institutional software for Morningstar. “Our new asset allocation functionality in Morningstar Direct offers institutional investors a flexible tool with multiple options to enhance and refine traditional mean variance optimization or take advantage of some of the most cutting-edge modeling.”

The new asset allocation functionality is included with all Morningstar Direct subscriptions. Introduced in 2001, Morningstar Direct combines global investment data and content with sophisticated analytics. It equips more than 5,300 users at nearly 1,700 institutions globally with data and tools to interpret financial information for investment ideas and communicate it in clear, visual reports. More information on Morningstar Direct can be found at: http://global.morningstar.com/MorningstarDirect.

For more information about the new Morningstar Direct asset allocation functionality, please visit http://global.morningstar.com/DirectAssetAllocationInfo.

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 individuals, financial advisors, and institutions. Morningstar provides data on approximately 390,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services and has nearly $140 billion in assets under advisement and management as of March 31, 2011. The company has operations in 26 countries.

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©2011 Morningstar, Inc. All rights reserved.
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