CHICAGO, Feb. 7, 2011 /PRNewswire/ -- Morningstar, Inc.
(Nasdaq: MORN), a leading provider of independent investment
research, today introduced four new data points for exchange-traded
funds (ETFs) that will provide investors with more robust measures
of the total costs and risks associated with investing in
individual ETFs. Three of the new data points help to quantify the
total cost of an ETF by measuring the contributions of an ETF's
portfolio manager to performance and liquidity in the secondary
market. The fourth new data point measures portfolio concentration
in individual sectors or individual securities.
The new data points are:
- Tracking Error: a measure of how closely an ETF follows its
benchmark index on a day-to-day basis. Typically caused by sampling
error or incomplete replication of the benchmark portfolio,
tracking error can cause an ETF's performance to deviate
dramatically from its index over time. Morningstar is the first in
the industry to calculate tracking error on a daily basis.
- Estimated Holding Cost: a measure of cost that takes into
account both explicit and indirect expenses and payments, like
income to the ETF from lending shares to options traders. This
measures long-term deviations from the index excluding intraday
volatility.
- Market Impact Cost: a measure of an ETF's liquidity, by
calculating the basis point change in an ETF's price caused by a
$100,000 trade. ETFs with lower
liquidity can cost more to buy as large purchases drive up their
price.
- Portfolio Concentration: a measure of portfolio concentration
in a single or small number of sectors, countries, securities, or
credit grades or durations, which can affect investment risk.
"Our enhanced analytics are one of the first in the industry to
provide a deeper dive into the indirect costs related to investing
in ETFs. Allowing ETF shareholders to better understand the total
cost of purchasing and owning an ETF can impact long-term
performance just as much—if not more—than disclosed expense
ratios," said Scott Burns, director
of ETF, CEF, and alternative research for Morningstar. "These cost
measures vary in importance depending on how long an investor plans
to hold an ETF, and how much an investor plans to invest. Our new
data points combine to provide a more complete picture of ETF
costs, taking all those factors into account. In addition, our
portfolio concentration measure will help investors better
understand security- or sector-specific risks."
Morningstar covers about 98 percent of the ETF universe, with
analyst research reports on more than 400 ETFs and data on
approximately 4,500 ETFs. Morningstar has more than 15 ETF analysts
globally.
The new data points are currently available in Morningstar
Direct(SM), the company's web-based global research platform for
institutional investors and through licensed data feeds. To view
the methodology for the new ETF data points, please visit:
http://global.morningstar.com/ETFdatapoints.
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
Internet, software, and print-based products and services for
individuals, financial advisors, and institutions. Morningstar
provides data on approximately 370,000 investment offerings,
including stocks, mutual funds, and similar vehicles, along with
real-time global market data on more than 4 million equities,
indexes, futures, options, commodities, and precious metals, in
addition to foreign exchange and Treasury markets. The company has
operations in 26 countries.
©2011 Morningstar, Inc. All rights reserved.
MORN-R
Media Contact:
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Nadine Youssef, 312-696-6601
or nadine.youssef@morningstar.com
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SOURCE Morningstar, Inc.