Advisors who invest client funds in Morningstar Managed Portfolios will see some changes starting in the second half of the year.
That’s when Morningstar will begin to replace the assets of Managed Portfolios with Morningstar Funds, whose registration statement with the Securities and Exchange Commission was declared effective on July 11, removing a layer of fees.
Morningstar Funds are offered exclusively to financial advisors and will be subadvised by many of the same investment managers used in Morningstar’s multi-asset Managed Portfolios.
“As more advisors choose to outsource investment management to Morningstar, we are focusing on helping them deliver a lower-cost, personalized, and goal-based experience to investors,” said Kunal Kapoor, Morningstar’s chief executive officer, in a statement.
(Related: Morningstar Prepares to Launch Its Own Funds)
Kapoor said the launch of Morningstar Funds “expands the menu of options for advisors” who work with Morningstar, from using the firm’s data, research and software in their practice to outsourcing investment management.
The nine mutual funds comprising Morningstar Funds consist of three equity funds, four bond funds, one alternative fund and one unconstrained allocation fund.
Expense ratios range from a low of 0.56% for the Morningstar Total Return Bond Fund to a high of 1.01% for Morningstar International Equity Fund, including fee waivers for some funds that run through the end of August 2020.
Minimizing costs “was the key driver” in Morningstar’s decision “to design and launch its own mutual funds used in Managed Portfolios,” said Daniel Needham, president and chief investment officer of Morningstar Investment Management, in a statement. The new arrangement also gives Morningstar flexibility to make changes in the portfolios and express investment ideas.
Each fund is structured as an open-end mutual fund with distinct objectives and strategies and may invest in securities of other investment companies such as ETFs, but investments will be made primarily through subadvisors.
See the list of funds below. They are the same funds included in Morningstar’s filings with the SEC in April and June, but the expense ratios of a few funds increased slightly in the latest June 28 filing. None of the funds will be rated by Morningstar.
Morningstar U.S. Equity Fund (MSTQX)
Expense Cap: 0.87% Subadvisors: ClearBridge Investment, Diamond Hill Capital Management, Levin Capital Strategies, MFS Investment Management, Wasatch Advisors, Westwood Management
Morningstar International Equity Fund (MSTFX)
- Expense Cap: 1.01%
- Subadvisors: Harding Loevner, Harris Associates, Lazard Asset Management, T. Rowe Price
Morningstar Global Income Fund (MSTGX)
- Expense Cap: 0.98%
- Subadvisor: Schafer Cullen Capital Management
Morningstar Total Return Bond Fund (MSTRX)
- Expense Cap: 0.56%
- Subadvisors: BlackRock Financial Management, Western Asset Management
Morningstar Municipal Bond Fund (MSTPX)
- Expense Cap: 0.63%
- Subadvisors: T. Rowe Price Associates, Wells Capital Management
Morningstar Defensive Bond Fund (MSTBX)
- Expense Cap: 0.57%
- Subadvisor: First Pacific Advisors
Morningstar Multisector Bond Fund (MSTMX)
- Expense Cap: 0.80%
- Subadvisors: Franklin Advisers, Loomis, Sayles & Co., TCW Investment Management
Morningstar Unconstrained Allocation Fund (MSTSX)
- Expense Cap: 1.12%
- Subadvisors: Brandywine Global Investment Management, Lazard Asset Management
Morningstar Alternatives Fund (MSTV)
- Expense Cap: 1.44%
- Subadvisors: SSI Investment Management, Water Island Capital