February 14, 2007

Morningstar Adds Managed Accounts

New stock portfolios take advantage of firm's indexes and analytical strength

Advisors who are looking at managed accounts for stocks may want to examine a new offering from Morningstar Investment Services, Managed Portfolios Select Stock Baskets, which leverages the independent research capabilities of the firm's 95 stock analysts covering over 1,900 securities, and uses Morningstar's indexes.

Available only through investment advisors, the portfolios consist of "baskets" of stocks based on the Morningstar Indexes but individualized for an investor's goals and risk tolerances. "Let's give our clients a canvas to paint a picture of what they want their clients stock exposure to look like," says Morningstar Investment Services' President and CIO Art Lutschaunig.

In structuring a portfolio the investor and her advisor would decide on an investment direction. If the choice was large-cap core and mid-cap value stocks, then the choices would come from Morningstar's large-cap core and mid-cap value indexes. Investors can opt to restrict certain types of investments (e.g. tobacco stocks). Stocks that the client already owns can also be considered so as not to artificially overweight in particular equities or sectors them. The portfolios are also designed so that no holding ever accounts for more than 8% of the total. Advisors can specify how much or little they want the portfolio to track the index.

The portfolios are actively managed; the stocks are all re-evaluated daily and portfolio adjustments are made based on the analysts' ratings for those stocks. Fees for the Select Stock Baskets are broken into two parts, an advisory fee for building and managing the portfolio, and an administrative fee for accounting, record-keeping, etc. The advisory fee is 65 bps for the first $1 million, the next million is 60 bps, and for assets beyond that, 50 bps. The administrative fee is 8 bps for the first $1 million and 5 bps thereafter.

Minimum investment for these portfolios is $500,000. Morningstar Investment Services offers two other types of customized accounts that have lower minimums, however: Morningstar Managed Portfolios using mutual funds, with a $50,000 minimum account size, and using ETFs with a $150,000 minimum account size.

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