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Report From Morningstar: Adjusting Workstation

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The Morningstar Insight Forum began the 2003 Morningstar Investment Conference early Wednesday in Chicago as Don Phillips, the company’s managing director, addressed new Advisor Workstation portfolio construction methods and why the way advisors interact with the market should not change.

“It strikes me as ridiculous that the way we talk about the market is completely divorced from the way we participate in the market,” Phillips told attendees at the preconference session. As a result, “people are buying good funds, yet they are building bad portfolios.”

“How do you build a portfolio intelligently?” Phillips asked. “The problem isn’t in the individual research, but in the overall process people are using to put together a portfolio.”

Phillips said Morningstar has therefore changed Advisor Workstation to address the issues of portfolio assembly, style methodology, and sector analysis, partly by modifying its traditional nine style boxes to show a range of styles exhibited by a given mutual fund.

“The improvements we set use more fundamental analysis” and are designed to make portfolio construction more seamless, explained Phillips. “When investors’ expectations are one thing and the managers’ are something else, you end up with a failed marriage.” To avoid that, he reemphasized the importance of sector diversification and continual due diligence.

It is important to conduct regular due diligence with all your investments, he said, to make sure a fund is still appropriately placed in your clients’ portfolios.

For the most part, portfolio building is top-down, Phillips said. But he believes advisors can do better with more bottom-up research and by paying more attention to style tilts.


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