Morningstar is getting ready to launch its own mutual funds for fee-based financial advisors.
In a recent amended filing with the Securities and Exchange Commission, Morningstar names the asset management companies that will serve as subadvisors for the nine funds that constitute the Morningstar Funds Trust, along with their individual portfolio managers and the expense ratios for each.
The firm, which first disclosed these plans last March along with an expected launch in the fourth quarter of 2017, now expects to introduce the funds in the third quarter, but it could give no assurances on timing, according to the SEC filing, which was first reported by Citywire. Morningstar is awaiting review and comment from the SEC before finalizing the registration statement.
The Morningstar Funds Trust includes nine actively managed funds that essentially replace the 15 to 25 third-party funds in Morningstar Managed Portfolios, which are offered exclusively to financial advisors. Although the funds are expected to change, “the underlying investment exposures — stocks, bonds and other securities — should be largely unchanged,” according to the SEC filing.
In the current incarnation, Managed Portfolios invest in third-party funds, which choose the funds’ securities, as well as individual stocks and ETFs. With the new launch, Morningstar will be more directly in charge of the mutual funds portion. Managed Portfolios will invest in Morningstar Funds, which will then invest in selected securities chosen by third-party managers.
The change is expected to simplify portfolio management due to the reduced number of funds and asset managers, reduce costs — about 20% on average — enhance tax efficiency and facilitate asset reallocation when necessary, according to the SEC filing.
In addition, it will provide access to skilled portfolio managers who don’t offer mutual funds, such as Levin Capital Strategies, a privately held hedge fund manager that doesn’t have mutual fund but is among the multiple managers selected for the U.S. Equity Fund within the Morningstar Funds Trust.