CHICAGO, Jan. 23, 2012 /PRNewswire/ -- Morningstar, Inc.,
a leading provider of independent investment research (NASDAQ:
MORN), today issued two research reports—the "ETF Managed
Portfolios Landscape Report" that explores current trends, asset
growth, and the industry outlook for ETF managed portfolios, and
another, "ETFs Under the Microscope: Tax Efficiency Survey" that
tests the claims of the tax efficiency of ETFs.
ETF managed portfolios are investment strategies that typically
have more than half of their portfolio assets invested in
exchange-traded funds. They are primarily available as separate
accounts, and they represent one of the fastest-growing segments of
the investment industry. In September
2011, Morningstar announced plans to research and rank ETF
managed portfolios. The company is now tracking nearly 370
strategies from 95 firms through its separate account database with
collective assets under advisement of approximately $27 billion. As part of this effort, Morningstar
has developed a proprietary portfolio attribute classification
system based on its analysis of the ETF managed portfolio's
investment strategy as well as a historical review of disclosed
holdings. Morningstar's new system evaluates four main attributes:
Universe (which looks at the starting scope of a strategy's
investment process on a global basis), Asset Breadth, Portfolio
Implementation, and Primary ETF Exposure Type. The information
is now available in Morningstar Direct(SM), the company's web-based
global investment analysis platform for institutional
investors.
Andrew Gogerty, Morningstar's ETF
managed portfolios strategist and the author of the report, said,
"As more investment professionals become familiar with ETF managed
portfolio strategies, we expect demand for information to increase,
and our goal is to provide the industry standard for classifying
and comparing these strategies. By providing insight into a
strategy's attributes, we want to help advisors and institutional
investors better understand the investment philosophy behind a
particular strategy."
In the ETF Managed Portfolios Landscape Report, Morningstar
analysts evaluated the growth, assets, performance, categories, and
other trends among the ETF managed portfolio strategies included in
Morningstar's database. The report found:
- Total assets in ETF managed portfolio strategies rose by 43
percent in 2011;
- The total amount of ETF managed portfolio strategy assets in
the U.S. is estimated to be between $40
billion and $100 billion when factoring in discretionary and
non-discretionary assets and model portfolios;
- The space is currently dominated by global strategies (defined
as strategies where investors can gain exposure in any global
market), which hold more than 72 percent of all ETF managed
portfolio assets);
- The subset of Global All-Asset strategies, which have the
ability to invest in multiple asset classes, has captured more than
half of the asset growth in ETF managed portfolios over the past
year;
- An important factor driving growth is the trend for financial
advisors to outsource money management functions to firms
specializing in ETF managed portfolio strategies, which allows
advisors to focus on managing clients' overall financial
profiles.
Additionally, as a result of the changing distribution dynamics
in the industry shown in the report, Morningstar plans to begin
systematically collecting assets under advisement (AUA) for
separate account strategies in 2012 to better capture assets
following a given strategy.
In a separate report also released today, Morningstar examined
the tax efficiency of ETFs by measuring the frequency of capital
gains distributions of ETFs compared with indexed open-end mutual
funds over the past five, 10, and 15-year periods. The report found
that most ETFs are indeed tax-efficient compared with open-end
funds, and the primary driver of ETFs' tax efficiency is that most
ETFs are passively managed index funds. ETFs also generate a
smaller, but still significant tax savings from their structure—in
the event of redemptions, ETFs help minimize taxable capital gains
through the ability to exchange securities in-kind.
However, the report also found that tax efficiency is only one
small component of after-tax performance: expense ratios, tracking
error, index methodology, and replication methods may have an
effect on returns that exceed any tax benefit. In addition,
investor behavior, including managing allocations and minimizing
turnover, are far more important than the tax structure of an
investment vehicle when determining long-term performance.
Paul Justice, Morningstar's
director of ETF research, North
America, said, "We wanted to test the tax efficiency claims
that ETF providers have boasted about for years, and it turns out
their claims are largely true. However, most passive mutual funds
are extremely tax efficient as well, and when all efficiency
factors outside of the tax question are put into play, we find that
fund structure plays only a small role."
The full "ETF Managed Portfolios Landscape Report" can be found
here: http://global.morningstar.com/ETFLandscape2012. The full
"ETFs Under the Microscope: Tax Efficiency Survey" report can be
found here: http://global.morningstar.com/ETFTaxEfficiency2012.
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 330,000
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
through its registered investment advisor subsidiaries and has more
than $167 billion in assets under
advisement and management as of Sept. 30,
2011. The company has operations in 26 countries.
©2012 Morningstar, Inc. All rights reserved.
MORN-R
Media Contact:
Shawn Malayter,
312-696-6050 or shawn.malayter@morningstar.com
SOURCE Morningstar, Inc.