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In the latest issue of the Morningstar Magazine you can read about why common assumptions of how much income a retiree will need don’t always work.

Retirement is the most expensive lifetime “purchase” made by most people. Therefore, it makes sense to understand how much retirement is actually going to cost, but it’s a complex calculation. We will briefly explore some common assumptions used when estimating the cost of retirement – such as generic replacement rates of 70% or 80%, the idea that retirement spending increases annually by inflation, and that retirement lasts 30 years – and find that these assumptions often do not pan out.

Read the full article – True cost of retirement__

Posted in: IFA News and Commentary, Morningstar, Research,

Every month Morningstar issues the Global Investment Summary, a report which details the current economic global outlook.

Following a very weak start to the year – global growth advanced at little more than around a 1.8% annualised rate in Q1 – a rebound in world activity now appears well underway.  As expected, some of the main drivers of the early year slowdown have proven to be temporary, but, even so, the Q2 recovery is somewhat mixed with forecasts easing in a number of regions during July but released figures surprised positively.  Global GDP is now forecast at around a 3% pace in Q2, still well below trend.   Read full report

Read previous versions of the Global Investment Summary

Posted in: IFA News and Commentary, Morningstar, Research,

New analysis from Morningstar reveals investor interest for Exchange-Traded-Products (ETPs) in Europe has taken a dramatic upswing in the first half of 2014. According to preliminary data calculated by Morningstar, the European ETP market received EUR 22.9bn in net inflows in H1 2014. This more than doubles the total net inflows for the whole of 2013 and stands just EUR 4.3bn shy of that for the whole of 2012. Meanwhile, total assets under management in ETPs at the end of H1 2014 stood just under EUR 342bn, up from EUR 302bn at year-end 2013.

Full monthly Fund Flow Update

Posted in: IFA News and Commentary, Morningstar, Research,

Posted in: IFA News and Commentary, Morningstar, Research,

By Richard Whitehall{#ctl00_ctl00_MainContent_Layout_1MainContent_lnkAuthor}

Tim Steer won’t buy a stock without meeting company executives.

Tim Steer is manager of the Artemis UK Growth fund and he also runs institutional mandates including the Artemis UK Hedge Fund. He has been at Artemis since mid-2009 having previously managed the UK Alpha fund at New Star. Having first qualified as a chartered accountant he started his investment career as a small-cap analyst for Merrill Lynch and HSBC.

Steer’s Artemis UK Growth fund has a Bronze Morningstar OBSR Analyst Rating. In that fund he uses his accountancy background to analyse each company’s accounts in detail, which he believes can reveal much about its current state and offer a guide to its future potential. In particular, he pays significant attention to the finer detail in accounts, concentrating specifically on the use of provisions, cash flow, revenue recognition, debtors and debtor levels. The investment process is wide ranging and also includes a qualitative rating tool.

Within the investment process he emphasises meeting and gaining a thorough knowledge of a company’s management; indeed he won’t buy a stock without meeting executives. In that context it will be interesting to see Steer interview a CEO from a FTSE company at the Morningstar Investment Conference this May. It will provide an insight, both in terms of what information Steer is looking to gain from the CEO, and in terms of how the CEO views the company’s recent performance and the opportunities going forward. It is a rare opportunity to see a fund manager “in action” and should be an informative and entertaining session.

Tim Steer will be one of many UK investment luminaries speaking at the Morningstar Investment Conference in London this May. See the Morningstar corporate site for more information.

Posted in: Events, IFA News and Commentary, Morningstar, Morningstar OBSR Commentary, Research,

Terry Smith is a well-known personality in the finance industry, having headed up a number of FTSE companies, including Tullet Prebon (TLPR), for which he is currently the CEO. He is an original thinker and has often demonstrated his willingness to bet against the crowd. In November 2010 he launched the 

FundSmith Equity fund, rated Bronze by Morningstar OBSR analysts, which seeks to invest in high quality businesses whose assets are intangible and difficult to replicate, thereby compounding in value over the years. These stocks are often referred to as high quality businesses and are most commonly found in some of the more defensive sectors. Understandably, many of these companies have performed well in recent years in both relative and absolute terms and investors have preferred the safety and predictability of their earnings streams. The question that has consequently often been asked, is whether or not they remain attractive from a valuation stand-point?

Smith considers “value” in a number of different ways, one of which is to compare the companies’ Free Cash Flow (FCF) yield with the normalised yield over time on the long bond. If Smith & Co. can purchase stocks that have a FCF yield equal to or greater than the long bond yield, and that have free cash flows that can grow over time, he believes they  are getting good value—certainly relative to the so-called ‘risk-free rate’ and possibly even in absolute terms.

Using these metrics, Smith argues that the companies in their portfolio are higher quality than the market, based on their return on capital, and have FCF and dividend yields in excess of the market and the long bond. He also strongly believes that these cash flows and dividends will continue to grow. We look forward to hearing his thoughts on why it remains appropriate to continue investing in a portfolio of so-called ‘boring’ companies and what likely outcome investors may anticipate.

Terry Smith will be one of many UK investment luminaries speaking at the Morningstar Investment Conference in London this May. See the Morningstar corporate site for more information.

Posted in: Events, IFA News and Commentary, Morningstar, Research,

Beginning this year, providers of index-tracking UCITS will be required by European regulation to disclose predictions of their funds’ tracking error and tracking difference. Providers will also have to explain any divergence between their predictions and the funds’ actual performance.

Morningstar’s research report, On the Right Track: Measuring Tracking Efficiency in ETFs, examines the factors that influence tracking error and tracking difference in exchange-traded funds (ETFs), and applies those metrics to a selection of 65 ETFs linked to eight popular equity indices.

The key findings of the Morningstar report are:

Hortense Bioy, director of European passive fund research for Morningstar, said:

“Tracking error and tracking difference both play a part as complementary measures for assessing the replication quality of an ETF. As ETFs continue to gain in popularity, there is an increasing need for investors to be clear about these most commonly used metrics. In particular, there seems to be considerable confusion around tracking error, its meaning, key drivers, and calculation. Beyond the definition provided last year by ESMA in its final guidelines on ETFs and other UCITS, we believe that investors would benefit from a harmonised approach to calculating tracking error. Our report intends to open up this discussion.”

For a copy of the full research report, please click here.

Authors

Ben Johnson, Director, Global Passive Fund Research

Hortense Bioy, CFA, Director, European Passive Fund Research

Alastair Kellett, CFA, CAIA, International ETF Analyst

Lee Davidson, ETF Analyst

Posted in: IFA News and Commentary, Morningstar, Research,

On 11 January we launched the first Morningstar Analyst Ratings for Closed-end Funds. Our coverage now comprises around 70 funds and still growing. At Morningstar we believe wholeheartedly in the investment trust structure and think these funds have much to offer their shareholders.

There was much to do behind the scenes to enable us to give qualitative ratings to investment trusts. We recognise the need for advisers to be able to compare all funds on a like-for-like—and vehicle-agnostic—basis. While this sounds fairly straightforward, the reality is that it’s a little more complex to get the right information.

We have been working hard to get investment trusts to provide their full holdings on a full and frequent basis—something they haven’t had to do before. We’ve then been able to categorise them according to our Morningstar categories, which are holdings-based, to enable that true peer comparison.

With the funds classified under our proprietary categorisation system, we could then enhance the value of our Morningstar Rating by calculating it using an investment trust’s NAV rather than share price. One of the aims of the Morningstar Rating is to enable a comparison of manager skill, rather than performance that’s beyond his or her control. By classifying investment trusts into our Morningstar categories, you can now see the full peer group of like-minded funds and make more meaningful comparisons.

With full holdings data now available on a regular and frequent basis on many funds, we’ve been able to undertake detailed analysis of those funds and start to issue ratings and reports. The funds we’ve covered so far have been some of the largest by fund size, and also the most familiar or prominent names, but crucially it’s also been where we have good transparency and access to the fund managers. That said, we want to make our coverage meaningful and research those funds on which you want our opinion so there are others on our radar where we’re still working on getting that data and access.

So far we’ve covered funds across a range of sectors, and at this stage we’re focused on the more traditional, equity funds – so global equity, UK, European, emerging markets, Asia and also some of the sector funds.

Transparency is still a challenge, although we’re delighted with the response we’ve had to our paper that we released in May: ‘Investment Trusts: Why Transparency Matters.’ In this paper, we wanted to demonstrate why it’s so important for investment trusts to disclose full holdings and on a frequent basis. Investors and their advisers need to have timely information to be able to fully understand risks to which they are exposed. The response has been overwhelmingly positive—not just from those funds on which we weren’t getting data, but we’ve also seen an increase in frequency from others where we were getting the holdings on an annual or semi-annual basis and this has now moved to quarterly or even monthly.

It’s not just the asset managers that have responded positively, it’s the funds’ boards of directors too. Like us, they see the RDR as an opportunity to bring their funds a little more onto the radar than has been the case in the past. To that extent, more and more they’re looking beyond just their AIC sector peers for comparison purposes when reporting to shareholders and we’re encouraged to see their interest in our use of the Morningstar categories.

The biggest challenge is, still, access.  We want to see investment trusts as a feature on the major fund platforms to encourage their wider use. It’s not an impossible task: Alliance Trust Savings has been offering them on their online platform for years.

Posted in: IFA News and Commentary, Morningstar, Research,

We’re pleased to announce Morningstar has been nominated for the 2012 Aberdeen Platform Awards as the leading independent planning tool provider.

If you’re happy with the service Morningstar provides, please vote for us: The Aberdeen Platform Awards

Morningstar was nominated in the category of Leading Independent Tool Provider, which is for the independent toolset available to advisers that they most value to support their proposition. It may be an end-to-end solution or a tool for one or more link in with the advice chain.

Posted in: Events, IFA News and Commentary, Morningstar, Research,

Did you spot the latest Morningstar®U.K. Market Performance Chart in last week’s Investment Week or Professional Adviser magazine?

If you haven’t seen it before, the annual chart is a historical snapshot of how various asset classes have behaved since 1970 including how economic indicators and political events have influenced investment performance historically.  For example, the U.K. stock market experienced severe declines in 1973–1974 (oil crisis) and 2008–2009 (subprime crisis) that took a significant time to recover.

It also shows the growth of £100 invested in five major asset classes (U.K. equities, U.S. equities, European equities, U.K. bonds, and cash), across three hypothetical portfolios (adventurous, moderate, and cautious), plus inflation since 1970.

Click here to see a chart sample. You can find more general information here.

Posted in: IFA News and Commentary, Morningstar, Press Releases, Research,