From Morningstar, Select Stock Baskets

The portfolios are actively managed; the stocks are all reevaluated daily and portfolio adjustments are made based on the analyst’s ratings for those stocks. The analysts rate each company using a discounted cash flow model and other metrics that include price-to-fair-value; price-to-sell-target; and the economic “moat” surrounding a company–which, Lutschaunig explains, is the barrier to entry into a company’s business as well as the company’s level of market share. Analysts make an adjustment for each company’s business risk, weighing its amount of debt, volatility of the business, steadiness of cash flows, and other factors. For companies that the analysts consider high-risk, the “discount-to-fair-value needs to be at least 15%,” says Lutschaunig, while a company with very stable cash flows might need only a 10% discount. “It makes the research very valuation-sensitive; it tends to be a little bit more on the conservative side–it usually gives us very good entry points for purchasing.”

Fees for the Select Stock Baskets are broken into two parts, an advisory fee for building and managing the portfolio, and an administrative fee. The advisory fee is 65 bps for the first $1 million, falls to 60 bps for the next million, and for assets beyond that, is 50 bps. The administrative fee is 8 bps for the first $1 million and 5 bps thereafter.

The minimum investment for the Select Stock Baskets 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.