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March 10, 2017 at 01:47 PM
Morningstar has filed with the Securities and Exchange Commission to launch its own its open-end investment company known as Morningstar Funds Trust, which will consist initially of nine subadvised mutual funds that will be available for financial advisors only, not for the retail public, through Morningstar Managed Portfolios.
The new funds will replace third-party funds currently held in Managed Portfolios, but still use outside fund managers, known as subadvisors.
“Instead of investing in third-party funds, the portfolios will invest in the Morningstar funds, which, in turn, will invest their assets in individual stocks, bonds and other securities that have been selected by third-party managers,” according to the SEC filing.
Morningstar says it is making the change to save costs “by removing a layer of costs embedded in the current fee structure,” to simplify the portfolios and how they’re managed – there will be nine funds instead of the current 15 to 25 – and to gain flexibility. It says it will be able to reduce the number of funds because each fund will have multiple managers.
“The impetus for launching the Morningstar funds is to lower the overall fees that these clients pay,” according to a Q&A statement that accompanied the SEC filing. It expects net fees will decline about 20% and hopes the funds will launch in the fourth quarter of this year.
Morningstar managers will be able “to express investment ideas and adjust positions as circumstances warrant,” according to the filing, which explains that Morningstar will be able to move money around more easily between subadvisors and invest in firms that don’t offer mutual funds.
The filing also notes that many of the funds available to advisors are expected to change but the underlying investment exposures should basically remain the same. Only those Managed Portfolios that use active mutual funds will be affected: Active/Passive Asset Allocation, Retirement Income, Multi-Asset Income and Absolute Return. Those portfolios that invest exclusively in ETFs or in individual stocks or securities will not be affected.
Morningstar Funds Trust will initially consist of nine funds: an unconstrained allocation fund, a defensive bond fund, total return bond fund and multi-sector bond fund plus funds covering these asset classes: U.S. equity and international equity, global income, alternative investments and municipal bonds. Jon L. Ten Haagen, founder and principal of the Ten Haagen Financial Group in Huntington, New York, says he’s “concerned” about how Morningstar will “promote its own fund family while being the overseeing body to run manager groups within other fund companies.
