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Morningstar to Offer Advisors a New Tool to Evaluate Risk: Portfolio Products

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As an alternative approach to traditional individual investor risk-profiling surveys, Morningstar has developed a new risk framework to help advisors gain a clearer picture of business risk and portfolio suitability across an entire book of business.

Using proprietary algorithms, Morningstar’s solution can help identify unintended overexposure across multiple client portfolios managed at advisors’ discretion. The approach identifies a suitable portfolio given an investor’s goals, prioritizes investigation into sources of overexposure, and informs a firm’s strategy for defining advisor roles and pinpointing opportunities for advisor training and development.

“Morningstar sees an unmet need to view risk through multiple, additional lenses,” Tricia Rothschild, chief product officer for Morningstar, said in a statement. “We work to understand risk at the firm level, and how it may create unintended risk consequences within individual client portfolios.”

The upcoming offering, in development as Morningstar Data Catalyst, may also assist advisors with best interest requirements as well as firms looking for new business opportunities with their existing investors.

Morningstar expects to launch the solution through software services and data feeds.

Morningstar Data Catalyst will build on the Global Risk Model, introduced in 2016 to help identify and assess the amount of risk in a portfolio by tracking each stock’s underlying economic exposure to 36 factors, including six style measures unique to Morningstar. Morningstar plans to expand the Global Risk Model to cover additional asset classes, beginning with corporate, sovereign, and municipal bonds later this year.

“We take into account underlying exposures within individual securities using our Global Risk Model,” Rothschild said. “And we examine how the psychology and related choices of the individual investor can introduce unintended and often unmeasured sources of risk, particularly in the face of significant market events.”

The understanding that traditional risk measures have not effectively addressed actual implementation gaps led Morningstar behavioral science researchers Ryan Murphy and Steven Wendel to develop a “Goals-Based Risk” framework as an alternative approach to traditional individual investor risk-profiling surveys for strategic investment planning.

Goals-based risk creates a detailed investor profile incorporating the investor’s risk reactivity—how market volatility may affect his or her risk tolerance going forward—and offers guidance to advisors on the types and timing of interventions they can make to keep the investor on track to reach established financial goals.

Ivy Launches Five Index Funds in Partnership With Proshares

Ivy Investment Management Company (IICO) introduced five new index funds, the first passively managed funds offered by the firm. Ivy, long recognized for its inventive, actively managed strategies, partnered with ProShare Advisors LLC to create the index funds.

Managed by IICO and sub-advised by ProShares, the funds—Ivy ProShares S&P 500 Dividend Aristocrats Index Fund, Ivy ProShares Russell 2000 Dividend Growers Index Fund, Ivy ProShares MSCI ACWI Index Fund, Ivy ProShares S&P 500 Bond Index Fund and Ivy ProShares Interest Rate Hedged High Yield Index Fund—became effective April 20.

They are offered by Ivy Distributors, Inc. and will be available through an advisory platform offered by Waddell & Reed, Inc., as well as through unaffiliated distribution.

Three of the five funds share their strategies with existing ProShares ETFs. While it has become common to see mutual funds migrated to the ETF wrapper, it is far more unusual to see the reverse—successful ETF strategies made available as mutual funds. For investors in retirement plans or advisory platforms that are typically limited to mutual funds, these Ivy ProShares Funds offer access to innovative index strategies.

VanEck Lowers Expense Ratio for VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC)

VanEck is lowering the expense ratio for its VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC).

As of April 26, the expense cap for EMLC will be reduced from 0.47% to 0.44%. The fund seeks to track the J.P. Morgan GBI-EM Global Core Index, which is comprised of bonds issued by emerging markets governments and denominated in the local currency of the issuer.

EMLC has attracted approximately $1.8 billion of inflows since January 2016 and, as of March 31, 2017, had over $3 billion in assets under management.

VanEck regularly evaluates fund expenses to identify opportunities to lower shareholder costs. The reduction in EMLC’s expense cap allows investors to benefit from the economies of scale that have resulted from the significant asset growth over the past year, according to the firm.

Franklin Templeton Adds Three U.S. Equity ETFs to LibertyShares Strategic Beta Suite 

Franklin Templeton Investments added three new strategic beta ETFs to its Franklin LibertyShares lineup—expanding its LibertyQ strategic beta ETF suite to include U.S. equity-focused products.

The new strategic beta ETF products are listed on the Bats BZX Exchange (BATS). 

Franklin LibertyQ U.S. Equity ETF (FLQL) seeks investment results that closely correspond to the performance of its corresponding index, LibertyQ U.S. Large Cap Equity Index. Franklin LibertyQ U.S. Mid Cap Equity ETF (FLQM) seeks the same for performance tied to LibertyQ U.S. Mid Cap Equity Index and Franklin LibertyQ U.S. Small Cap Equity ETF (BATS: FLQS) ties its performance to the underlying LibertyQ U.S. Small Cap Equity Index.

BNYMellon’s Pershing Expands Third-Party Model Providers Available on Managed Accounts Solution

BNY Mellon’s Pershing added Invesco and Loring Ward as two new third-party model providers on its Managed360 solution.

Managed360, offered through Pershing affiliate Lockwood Advisors, delivers a streamlined managed accounts experience, leveraging the power of Pershing’s NetX360 platform to help financial professionals scale their managed accounts business.

The new model providers will add the following to Managed360:

Invesco: Through its PowerShares ETF portfolios, managed by Invesco’s Global Solutions Development and Implementation team, Invesco will offer Pershing clients five traditional portfolios focusing on factor-based investing that span the risk spectrum from emerging to mass-affluent investors.

Loring Ward: Loring Ward will offer select Pershing clients its Global Portfolio Series, which are guided by Loring Ward’s Asset Class Investing Philosophy and built with funds from Dimensional Fund Advisors (DFA). The Global Portfolio Series offers seven risk-based portfolio models with as many as 10,000 securities from 45 countries. With overweights toward value, small-cap and profitable equities, the Global Portfolio Series models are designed for investors who are comfortable with broad diversification and a multi-factor approach.

ETF Industry Exposure & Financial Services ETF Provides Access to Companies Driving ETF Industry Growth

The ETF Industry Exposure & Financial Services ETF (TETF) launched on April 20, providing investors with a single point of access to the companies driving and participating in the growth of the exchange traded funds industry.

TETF seeks to track—before fees and expenses—the price and yield performance of the Toroso ETF Industry Index, which is designed to provide exposure to publicly traded companies that derive revenue from the ETF industry. This includes ETF sponsors, index and data companies, trading and custody providers, liquidity providers, and exchanges.

The Index is overseen by a committee made up of industry veterans, including Mike Venuto, CIO of Toroso Investments; Guillermo Trias, CEO of Toroso Investments; Linda Zhang, founder of Purview Investments; Kris Monaco, founder of Level ETF Ventures; and Kevin Carter, founder of Big Tree Capital.

AGF Announces Quantitative Investing and ETF Platform

AGF Management Limited announced the official launch of AGFiQ Asset Management (AGFiQ) in the U.S. market.

AGFiQ is the quantitative investment platform for AGF powered by a multi-disciplined team that combines the strengths of investment professionals across AGF and its affiliates from Highstreet Asset Management Inc. and FFCM, LLC.

AGFiQ’s QuantShares suite of U.S.-listed factor-based market neutral and sector neutral ETFs make use of “long-short” strategies in efforts of potentially generating spread returns that may help insulate investors from the ups and downs of the market. The firm offers four factor-based market neutral funds which provide exposure to momentum (MOM), value (CHEP), size (SIZ), and anti-beta (BTAL), and rounds out its line-up with an income-focused ETF, its Hedged Dividend Income Fund (DIVA).

MarketGrader and China Securities Index Partner on Smart Beta A-shares Indices

MarketGrader, an independent equity research and indexing firm, and China Securities Index Co. Ltd (CSI), a leading index provider in China, announced a partnership to develop, publish and license a family of China A-shares smart beta indices.

As part of the agreement, two indices will be launched immediately, the CSI MarketGrader China 200 Index and the CSI MarketGrader China New Economy Index.

The CSI MarketGrader Indices will use a proprietary growth at a reasonable price (GARP) stock selection methodology to identify financially strong companies in the A-shares universe that represent a new breed of equities in China’s rapidly transforming economy.

The CSI MarketGrader China 200 Index seeks to identify and follow the most fundamentally sound companies with the best growth prospects in Mainland China. The CSI MarketGrader China New Economy Index seeks to select and follow the best GARP stocks in Mainland China in the Consumer Staples, Consumer Discretionary, Technology, and Health Care sectors, which MarketGrader and CSI believe are poised to benefit the most from China’s ongoing economic transformation.

Index constituents are selected during a semi-annual rebalance based on their overall fundamental score in MarketGrader’s global equity research platform, which currently covers 2,800 A-shares listed in the Shanghai and Shenzhen Stock Exchanges. The transparent, replicable, rules-based indices are equal-weighted to minimize size bias and apply screens for diversification, including size and sector representation, and liquidity to support tradability.

–Read last week’s roundup here: Nuveen Adds Real Estate Allocation to TDF Series: Portfolio Products


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