In the 29 years since its founding, Morningstar has evolved its products and company to better serve its clients. In response to the needs of institutional investors it is adding another product to its stable that tracks investment strategy, instead of delivery vehicle.
The first product the company launched was the The Mutual Fund Sourcebook, published quarterly, containing performance data, portfolio holdings, and other information on about 400 mutual funds.
In 1992 the company created the now ubiquitous nine-square Style Boxes and launched its FundInvestor newsletter.
After the turn of the millennium the company turned out new products continuously. In 2000, it launched an online retirement advice service. In 2001, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Managed Portfolios and Morningstar Rating for stocks were launched.
In 2003, the company launched Morningstar managed retirement accounts, Style Box "Ownership Zones" and Morningstar Ratings for separate accounts. 2004 brought Stewardship Grade for funds. The company went public in 2005.
When ETFs began to gather assets like wildfire in 2006 the company launched its Morningstar Ratings for ETFs. In 2011 the company launched its Morningstar Analyst Rating for funds and Global Fund Report.
Morningstar has also made several data and research acquisitions in its lifetime. mPower.com, a San Francisco-based investment advisory firm that specialized in the large plan sponsor retirement market was acquired in 2003. In 2005 Morningstar upped its variable annuity data by purchasing Finetre Corporation's Variable Annuity Research and Data Service. 2006 brought Ibbotson Associates, a provider of asset allocation research and services and InvestorForce's hedge fund and separate account databases. Standard & Poor's mutual fund and data business was scooped up in 2007. The acquisition of the global financial filings database of Global Reports was completed in 2009. 2010 brought Aegis Equities Research and Old Broad Street Research aboard.
Morningstar's current global data universe as of December 31st, 2012 includes: 139,000 mutual fund share classes, 10,000 exchange-traded funds, 3,700 closed-end funds, 32,500 stocks, 7,000 hedge funds, 9,200 separate accounts and collective investment trusts, 111,000 variable annuity/life subaccounts and policies in the United States, 60,500 insurance, pension, and life funds and 4,500 state-sponsored college savings plan portfolios.
Now comes another innovation. The company will be enhancing its database to track managers by strategy, not vehicle. For example, PIMCO Total Return is available as an ETF, open-end fund, a SMA, institutional separately managed account and variable annuity. This database, which will be available on the Morningstar Direct platform, will link all the ways the strategy is available to investors so they can view the strategy as an entity in of as of itself.
The database also gives users the story behind the strategy-what the managers say about themselves, and analytical tools to test whether or not managers have stayed on track within their mandate or strayed from it.
Syl Flood, product manager at the company, sat down with Money Management Executive to talk about the capabilities this database will include and who the target users are. The company has not yet set a date for the rollout of the enhanced database.
Tell us about the new capabilities you're building for manager research teams.
We're assembling current capabilities in new ways for our existing institutional clients as well as for pensions, endowments and foundations. These audiences seek investment talent first, then decide what kind of vehicle-primarily a fund or separate account-through which they want to invest. We're strengthening the way we organize our existing fund and composite databases, and proprietary analyst research around the manager to better support their workflow.
Institutional investors are placing money in many more asset classes than ever, and have become agnostic about vehicle as long as they can hire managers at a price that makes sense. Our manager database will enable manager research teams to spend more time doing actual research and less time piecing together data from disparate product databases.
What types of managers will be available in the database?
Our global open-end fund database forms the foundation. As a result of our work with the wirehouse separately managed account platforms, we also have an extensive composite database. Together, these form a Morningstar-proprietary manager database representing more than $20 trillion in actively managed assets.
Which clients are looking for this data?
There is demand from pensions, endowments and foundations as well as their advisors-institutional investment consultants-to perform more extensive due diligence on the managers they hire. The manager database itself is a key capability, but the real differentiator is that we have Morningstar Analyst Ratings on almost $9 trillion in worldwide assets under management. Having more than 100 fund analysts worldwide enables us to offer this breadth of coverage. We'll complement our research with manager narratives-what the managers say about themselves.
What's more, we intend to offer analytical tools to test whether managers achieved results in the manner they claimed they would, or whether they strayed from their mandates when opportunities arose.
What is the current status?
We are pleased with the cooperation of managers in mapping their investment vehicles worldwide up to the strategy level. In conjunction with building the database, we are also developing software to allow clients to search and filter the data to find appropriate managers. The database will be available in our institutional research platform, Morningstar Direct.