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