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Morningstar Investment Services
× Mike Reeves, Regional DirectorMorningstar Managed Portfolios404-277-5744
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Morningstar Investment Services
Third Party Asset Manager:
Mutual Fund Portfolios
ETF Portfolios
Stock Portfolios
Stock/ETF Portfolios
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Morningstar Investment Services
Turnkey Investment Management Solution
Proposal generation
Investment Policy Statement
Reporting: statements, asset allocation reports, snap shots
Investment Management
Investment Analysis: Portfolio Compare, Monte Carlo Simulator
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Morningstar Investment Services
What we bring to the table:
Independence
Experience
Reach
Resources
Access
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Our Philosophy
×
We invest for the long-term×
We are independent thinkers ×
We employ a disciplined, consistent investment process ×
We believe in active management ×
We are sensitive to costs and taxes ×
We invest our clients’
money as if it were our own
×
We communicate in a timely and candid fashion
For Advisor use only. Not for public distribution.
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Why some advisors utilize a Turnkey Asset Management Program?
×
Access to consistent well-defined investment management
×
Active portfolio construction and risk management
×
Sharing of fiduciary responsibility
×
Ability to create operational efficiencies and deliver a differentiating client experience on a repeatable basis
×
Create capacity to serve clients better, Time Management
×
Focus on your strength & resources
×
Build value in practice
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TAMP statistics
► TAMP Assets have grown significantly with $200B+ today versus just $4B in 1994
TAMP users
Non-Users► Worry about delivering high-quality
investment management products and services 5%
75%
► Anxious about market volatility
23.6%
65.2%
► Dealing with compliance and regulatory issues
39.8%
61.7%
Source: CEG Worldwide (Financial Planning)
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Our Mutual Fund Portfolios
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Our portfolios at a glance
The information displayed is for illustrative purposes only. It should not be used to assess the exact risk/return relationship between portfolios. No guarantees can be given about future performance.
Asset Allocation
Series aims to meet your needs at various life stages with different risk profiles and return objectives. These complete portfolio solutions include multiple asset classes, investment styles, and managers.
Retirement Income Series is designed to generate a cashflow
stream that will last over a client’s expected time horizon and protect against the risk of clients outliving their assets
Focused Allocation Series provides exposure to a specific area of the capital markets, alternative investments, and global opportunities.
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Team of investment professionals focused on you
×
Analyzes your current financial situation×
Assists in determining your risk/return profile
×
Helps you select the appropriate portfolio×
Monitors performance relative to your goals and objectives
×
Reviews changes in your circumstances
►
Determines target asset mix►
Evaluates fund performance data to peer group and benchmark
►
Analyzes, selects, and monitors fund managers
►
Creates and constructs portfolios►
Reallocates and rebalances portfolios
MorningstarInvestment
Services Financial Advisor
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Our Investment Management Process
Asset Allocation Fund Selection Portfolio Construction
Risk Management
Dynamic Asset Allocation
Strategic Allocation
Sets long-term risk and return profile Diversify across multiple asset classes
Tactical Overlay
Over/underweight relative to strategic allocation Valuation sensitive
Fund Evaluation System
Quantitative Analysis
Performance analysis Risk metrics Run screens
Qualitative Due Diligence
Interview managers Peruse SEC filings On-site visits Evaluate stewardship
Maintain Risk Profile
Monitor
Managers Portfolio positioning Risk factors
Adjust
Rebalance accounts Top-down adjustments Fund specific changes
Diversified Portfolios
Portfolio Level
Holdings based analysis Manage to target risk Fund interaction/overlap
Fund Level
Tailor fund to strategy Contribution to portfolio risk and expenses
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Program benefits
×
Access to full universe of funds×
Portfolio management integrity×
Recognized, trusted name×
Scalable & Repeatable Investment process for Advisors×
All the resources of Morningstar to work for you & the client×
Simple communications×
Customized client management×
Responsive service team ×
Access to the Investment Team
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Our Absolute Return Portfolio Allocation
Long Equity, 7
Fixed Income, 10
Hedged Equity, 14
Long Short, 30
Convertible Arbitrage, 16
Merger Arbitrage, 6
High Yield, 4
Commodities, 5
Cash, 10
Based on recent allocations to funds that employ these strategies and positioning and may change over time.
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Building Blocks for an Absolute Return Allocation
×
Lower Volatility×
Tighter return spectrum×
Lower Beta vs. S&P 500×
Low correlation to the broad markets
Absolute Return Portfolio has been able to deliver:×
80% of the upside of S&P 500×
40% of the Downside of S&P 500
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Alternative Strategies
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Convertible Arbitrage:
Take long positions in convertible bonds and short underlying common stock. Neutralizes portfolio from beta or equity market risk, while income from coupons on convertibles and short interest credit are primary sources of returns.
×
Covered Call Writing:
Designed to generate income from writing call options against a basket of long equity positions. May also use put options to provide further downside protection.
×
Long-Short:
Take long positions in stocks that manager believes will increase in price while shorting stocks manager believes are overvalued and will decline in price. Short positions lower beta of portfolio and benefit from down market environments.
×
Merger Arbitrage: Buy shares in the target company of an announced acquisition, which will tend to sell at a slight discount to the takeover price due to uncertainty regarding the deal closing. Hedge position through use of options or shorting acquirer.
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Our Retirement Income Series: balancing income withdrawals and long-term growth
Retirement Income Long Range
Retirement Income Mid Range
Retirement Income Short Range
Recommended Time Horizon in Retirement: 2-15 Years
Target Distribution Rate: 6%
Recommended Time Horizon in Retirement: 10-20 Years
Target Distribution Rate: 5%
Recommended Time Horizon in Retirement: 20+ Years
Target Distribution Rate: 4%
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Mutual Fund Portfolio
Pricing Schedule
×
Account Minimum $50,000 ×
Client fee does not include the mutual funds’
expenses
×
Advisor fee can be discounted in 5 bps increments
Mutual Fund Portfolios
Up to $500,000
Next $500,000
Next $1MM
Over $2MM
Morningstar Investment Services 0.40%
0.35%
0.30%
0.20%
Advisory Firm 1.10%
1.05%
1.00%
0.90%
Total Annual Fee
1.50%
1.40%
1.30%
1.10%
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Our ETF Portfolio Line
The information displayed is for illustrative purposes only. It should not be used to assess exact spacing between portfolios. No guarantees can be given about future performance. For Advisor use only. Not for public distribution.
Conservative Income and Growth
Moderate Growth
Growth Aggressive GrowthR
E
T
U
R
N
R I S K
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The Best of Both Worlds
All the Advantages of ETFs
Active
Management
+
For Advisor use only. Not for public distribution.
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A “Core and Explore”
Approach
Total Stock
Foreign
Bond
Core
Cash
Financial
Health-care
Energy
Retail
TIPS
GrowthExplore
For Advisor use only. Not for public distribution.
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Sample Portfolio
Growth ETF Portfolio Holdings Ticker Weighting Exp Ratio
Vanguard Total Stock Market ETF VTI 28% 0.07Vanguard FTSE All-World ex-US ETF VEU 18% 0.25Vanguard Total Bond Market ETF BND 13% 0.11
Vanguard Growth ETF VUG 7% 0.11iShares
S&P Global 100 Index IOO 7% 0.40Financial Select Sector SPDR XLF 6% 0.24Health Care Select Sector SPDR XLV 5% 0.24SPDR S&P Oil & Gas Exploration & Prod XOP 5% 0.35SPDR S&P Retail XRT 5% 0.35iShares
Lehman TIPS Bond TIP 3% 0.20
Money Market FMOXX 3% 0.48
Portfolio Blended Expense Ratio 0.20
Core
Expl
ore
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ETF Rating Methodology
Valuation ×
Morningstar Price to Fair Value×
Price multiples: P/E, P/B, P/CF, P/S, Forward P/E
×
Morningstar growth, profitability, business risk scores
×
Expense ratio×
Bid/ask spread
×
Diversification×
Weighting methodology
Fundamentals
Costs
Index Construction Methodology
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Valuation Example
0.39$26.00$10.291.8%Borders Group
0.45$32.00$14.432.0%Office Depot
0.55$18.00$9.952.0%Chico’s
0.61$38.00$23.141.6%Petsmart
0.61$38.00$24.931.8%Macy’s
0.72$50.00$36.001.6%Walgreen
0.73Portfolio
0.77$30.00$22.961.8%Staples
Price/Fair Value
Morningstar Fair ValuePriceWeighting %Name
×
Takeaway: XRT was recently trading at a 27% discount to fair value
Source: Morningstar Direct; portfolio weightings as of Jan. 31, 2008; price, fair value data as of February 20, 2008.For illustrative purposes only; not intended to be an offer or recommendation to buy/sell the above securities
SPDR S&P Retail (XRT)
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Benefits of ETFs
×
Transparency of price×
Tax efficiency×
Passive diversification×
Great tool for implementing asset allocation strategies×
Protection against cash drag×
Cost advantages
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Competitive Fee Structure
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$100,000 account minimum (will accept accounts as low as $50,000 with minimum annual fee of $310)
×
Client fee does not include the underlying ETF’s expenses×
Advisor fee can be discounted in 5 bps increments
*Does not include fees/commissions associated with executing transactions nor the internal expenses of exchange-traded funds. It also does not include the advisory fee. Additionally, this fee covers costs associated with middle and back-office services such as a trading infrastructure and Participating Client accounting and reporting.
ETF Portfolios
First $1MM
Next $4MM
Thereafter
Total Fee
1.41%
1.35%
1.30%
Morningstar Investment Services Fee*
0.31%
0.25%
0.20%
Advisory Firm Fee
1.10%
1.10%
1.10%
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Our Stock Portfolios at a Glance
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Customized portfolio of individual securities×
Areas of focus: Global Equity, Growth, Value, Small-cap, Mid-cap, Large-cap, Foreign, Conservative Equity, Growth Equity, Equity Income
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Enables advisor to tailor portfolio to client needs×
Accommodate preference for restrictions on sector, industry, or individual stock exposures
×
Can add Fixed Income ETF’s or Bond mutual funds to balance out the portfolio×
Advisor can customize asset allocation between Stocks/fixed income
×
Accommodate current client holdings×
Client can transfer existing holdings for discretionary, tax-sensitive management×
Portfolio can be built around client’s other holdings
×
Actively managed to achieve added value×
Efficient trading and cost management
For Advisor use only. Not for public distribution.
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Broad Market
Global Equity
Market Capitalization
Large Cap
Mid-Cap
Small-Cap
Composite Style
Value & Core
Growth & Core
Foreign Foreign Stocks traded in the U.S.
Select Stock Baskets Portfolios
×
Advisor/Client can elect further customization by requesting Fixed Income ETF’s
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Conservative Equity
Tortoise Portfolio
Growth Equity
Hare Portfolio
Equity Income Dividend Portfolio
×Model Portfolios with minimum of $100,000
×Advisor can elect further customization by requesting Fixed Income ETF’s to balance out the portfolio. As long as the Equity position meets the minimum.
×Advisor can elect restrictions on sector, industry, or individual stocks
Strategist Stock Baskets Portfolios
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Morningstar Stock Research: Focus and key tenets
Look for superior businesses that trade at discounts to our fair
value
estimate
×
Wait for the “Fat-Pitch”×
Look for wide-moat companies×
Always, always have a margin of safety×
Don’t be afraid to hold relatively few stocks (25-30)×
Find great companies at a discount and don’t trade very often×
Free cash flow is what matters, not reported earnings
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Economic Moats
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Every stock we cover receives an Economic Moat rating, which is our assessment of the strength of the company’s competitive position.
×
We assume that all firms face competitive pressures that, over time, force down above-average returns on invested capital.
×
Companies with the ability to withstand the competition for very
long time receive Wide Moat ratings, companies with a moderate ability to withstand competition receive Narrow Moat ratings, and companies without meaningful competitive advantages receive No Moat ratings.
×
Moat ratings serve two important functions:×
Communicate overall quality of firm to investors. Wide Moat firms are more likely to be great long-term holdings; No Moat firms are more likely to bear close watching.
×
An input to valuation model –
the wider the moat, the higher the fair value. (Assuming similar growth rates and capital needs.)
Equity Research Services Provided by Morningstar, Inc.For Advisor use only. Not for public distribution.
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Morningstar Stock Research: Ratings
×
Fair Value estimate×
Moat rating (Wide, Narrow, No-moat)×
Uncertainty Rating: Low, Medium, High, Extreme×
Stars Rating: 5-4 stars trading at a discount to our fair value
3 stars trading at/around Fair value1-2 stars trading at a premium to our fair value
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From Analyst Valuation to the Morningstar Rating for Stocks
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Morningstar’s Breadth of Coverage
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Analyst coverage:×
More than 130 analysts×
Covering more than 2,000 stocks×
In 130 industries×
In nearly 50 countries ×
450 firms based outside the U.S.
×
Extensive coverage across market cap:×
465 large-cap stocks×
750 mid-cap stocks×
920 small-cap stocks
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Global Coverage
Regional Coverage
North America 1847Australia/New Zealand 251Asia 109Europe 124Latin America 61Middle East/Africa 22
2414
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Stock Valuations
Source: http://www.morningstar.comData as of Jan.9, 2009. See important disclosures in the Appendix.
All-time HighDec. 31, 2004
1.14 P/FV
52-Wk HighDec. 26, 2007
0.94 P/FV
CurrentJan. 9, 2009
0.75 P/FV
All-time LowNov. 20, 2008
0.55 P/FV
For illustrative purposes only.Past performance is not a guarantee of future results.
This graph shows the price to fair value of the median stock in Morningstar, Inc.’s stock coverage universe
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Investment Approach
“The Stock market is a no-called strike game. You don’t have to swing at everything----you can wait for your pitch”
Warren Buffett
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Clear Pricing Schedule
×
Account minimum: $100,000 for Strategist Series (Tortoise, Hare,
& Dividend)×
Account minimum: $250,000 Select Custom Stock Baskets×
Client fee does not include transaction costs associated with custody/clearing×
Advisor fee can be discounted in 5 bps increments
Select Stock Baskets Portfolios
First $1MM
Next $4MM
Thereafter
Morningstar Investment Services 0.55%
0.50%
0.45%
Advisory Firm 1.10%
1.10%
1.10%
Total Annual Fee
1.65%
1.60%
1.55%
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Tools and Resources
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Comprehensive web platform for advisors
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Client presentation tools (Samples)
Client Profile
Client Overview
Proposal
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Advisor information tools (Samples)
Monthly Portfolio ReportsQuarterly Commentary
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Helping advisors help their client’s
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Illustration tools
× Monte Carlo Simulations
× Portfolio Comparison
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Market educational pieces
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Direct communication
× Client write-ups and calls
×
X ray and snapshot reports, individual performance information
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Your Morningstar Investment Services Team
Mike Reeves, Regional Director404-277-5744 [email protected]
Sean Klock, Regional Consultant877-626-3224 ext. 8 [email protected]
Stephen Winchell, Service Consultant877-626-3227 [email protected]
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