CHICAGO — As an avid Morningstar user, I frequently use the firm’s data to assess fees, broadness of holdings, appropriateness of asset classes and forward ratings in clients’ portfolios.

Now Morningstar has launched three new data sets that could further assist me and other advisors in evaluating investment options for our clients. The new data includes information on HSAs, strategic beta and enhanced portfolio analytics.

I myself use an HSA and often recommend them as a long-term investment vehicle for clients. I pay for medical expenses with non-HSA assets now, so I can reimburse myself decades later. This makes it a Roth-like vehicle that also includes a tax deduction when the contribution is made. Not surprisingly, the accounts are growing in popularity, with more than 22 million HSA accounts now in existence, according to Lia Mitchel, a data content researcher with Morningstar.

Attendees check in at the 2018 Morningstar conference
Jim Tweedie, Wyckoff-Tweedie Photography


Morningstar’s new data assesses HSA accounts for fees, interest rates paid on cash, as well as investment design on menu options, quality of investments, price and performance. For those building up HSA assets like me, I think this will be a very useful and relevant tool. I’ll take a look and possibly change my own HSA asset manager, which recently removed my favorite Vanguard funds from their free trading platform.

Strategic beta (also known as smart beta) is another growing category, currently comprised of more than 1,300 products according to Morningstar’s Dayna Doman. She notes that the firm will now collect more data attributes to assess which factors and weightings are being used. While this will bring more transparency to multi-factor funds, I'm somewhat skeptical that most of these factors are based on past performance. Personally, I embrace the original beta, as smart beta hasn't been so smart lately.

I asked Dayna why Morningstar was increasing analytics on strategic beta given its own study showed most of these investments had underperformed basic beta (market-cap weighted) alternatives. Her response? Funds continue to flow into this space, so there’s certainly demand for more information.

As Morningstar pushes to stay relevant, the firm is also enhancing portfolio analytics. Kai Wu, a data project manager at Morningstar, notes that funds are using more derivatives, thus increasing their complexities. Morningstar breaks down data such as geographic exposure with far more detail than fund fact sheets. Morningstar is also attempting to convert accounting exposure to economic exposure by digging into the exposure of those derivatives. The firm is also looking at where revenue comes from, rather than where the company is based. For example, Apple is domiciled in the U.S. but revenue exposure varies across the company.

While I think these enhanced analytics are interesting, I tend to avoid complexities and focus instead on owning a global portfolio with just a couple of funds. These strategies limit the value of these particular data sets for me.

That said, taken together, I believe that all of these new developments will add incremental value to advisors and keep Morningstar on the cutting edge of data analytics. All three tools enhance the information available to advisors, aiding them in building the best portfolios for their clients.


Allan S. Roth

Allan S. Roth

Allan S. Roth, a Financial Planning contributing writer, is founder of the planning firm Wealth Logic in Colorado Springs, Colorado. He also writes for The Wall Street Journal and AARP The Magazine and has taught investing at three universities. Follow him on Twitter at @Dull_Investing.