© 2019 SourceMedia. All rights reserved.

Focus on ‘Whole-of-Life Portfolio,’ Says Morningstar Exec

CHICAGO -- The most important thing an advisor can do for clients is to integrate their investment portfolios with the rest of their financial needs, says Morningstar’s director of global fund research.

“Think about the whole-of-life portfolio,” Scott Burns told an audience as the 25th Morningstar Investment Conference got underway Wednesday.

He cited one investor who said he considered himself protected because he had only 20% of his portfolio in hedge funds -- but was failing to factor in his mortgages, the small businesses he owned, and other assets and liabilities that would affect his broader financial health. Considering those, “he should be all in Treasuries,” Burns said.

“Any next-generation asset allocation has to bring in all these other things,” he added.

Burns was one of four Morningstar participants in an afternoon round table session that covered several aspects of the company’s fund research, as well as the broader investing landscape. (Other panelists were Russel Kinnel, director of Morningstar’s mutual fund research, fund-of-funds research director Laura Lutton and research vice president John Rekenthaler.)

Among the other points made during the one-hour session:

The traditional style box no longer cuts it, Burns said. So what will Morningstar’s style box of 2020 look like? It must factor in liquidity, correlation and currencies, he said: “It has to be more inclusive of what’s going on.”


Although advisors do need to focus on keeping costs low, Burns said they shouldn’t simply be choosing between active and passive strategies. Instead, advisors should use the two approaches to complement one another. “I think things are changing,” Burns said. “A smart advisor, and investor, is using both.”

Kinnel outlined one way to think about allocation. "Start with low-cost index fund, then look: Is there an active fund that is low cost and can compete with it? If not, stay with the passive fund."


Morningstar launched its analyst rating system a year ago, but questions remain about how to use it in concert with the company’s longstanding star rating system -- especially when the two seem to say two different things about a fund.

The simple answer: “One is a data point and one is a Morningstar viewpoint,” Rekenthaler said. While the star rating is inherently backward looking, measuring a fund’s performance, the analyst rating is forward looking, Kinnel pointed out. The analyst rating is based on five key pillars: people, process, parent company, performance and price.

“I was shocked to see that the star rating moves around quite a bit,” Burns said. “The analyst rating takes some of the movement out.”


It’s getting harder for investors to uncover unknown but promising fund companies, but it’s also getting harder to find investment companies in the middle ground, panelists said.

“We're moving to a Walmart and Whole Foods kind of world,” Burns said. On the one hand there are stripped-down passive index products, the panelists explained; at the other end of the spectrum are high-end, high-cost mutual funds and hedge funds. "It's got to be harder to be a boutique firm today,” Rekenthaler added.

For reprint and licensing requests for this article, click here.