Morningstar Direct SM Asset Allocation June 2014 Release

Transcription

1 The Morningstar Direct team is pleased to announce enhanced performance to deliver faster results for an improved user experience. We are also introducing new forecasting functionality in our asset allocation tool that will help you determine optimal asset allocation policies. These new forecasting features are listed below and explained further as we demonstrate the navigation in this document. Time-Varying Allocation Minimum Cash-Flow Amounts. Minimum Rebalancing Amounts. Time-Varying Allocation The Time-Varying Allocation functionality allows you to change investment portfolios over time. This new capability helps you analyze the return and wealth projections for time-varying strategic asset allocation, such as the glide path of target-date portfolios. 1. Before we demonstrate the new Time-Varying Allocation functionality and the other enhancements, go to the Optimizer tab to create your target allocations such as an aggressive asset mix, moderate asset mix, and conservative asset mix Morningstar, Inc. All rights reserved. 1

2 2. Next, proceed to the Forecast Workspace and click on Forecasting button Morningstar, Inc. All rights reserved. 2

3 3. Go to the Time Varying Mix tab Morningstar, Inc. All rights reserved. 3

4 4. Click Add to start building your Time Varying Asset Mix. The drop down will contain your target asset mixes that you created in the Optimizer Workspace. Assign the years for your specific allocations. For example, if you or your client are retiring in 2022, then you may want to apply the Aggressive asset mix sooner and then the more conservative asset mix close to retirement. Once complete, click OK Morningstar, Inc. All rights reserved. 4

5 5. You will then have the option to display the Time Varying Asset Mix in your Workspace. Proceed to check Show and click OK Morningstar, Inc. All rights reserved. 5

6 6. As you can see below, you have successfully created a Time Varying Asset Mix to compare forecasting results with your other target allocations Morningstar, Inc. All rights reserved. 6

7 Minimum Cash-Flow The Minimum Cash-Flow Amounts functionality gives you more control when cash flows are dynamic, while ignoring insignificant cash flows. You are now able to set minimums for percentage of recent value and for percentage of average wealth during specific time periods. 1. Click on the Forecasting button to be taken to the Forecasting Settings window. Proceed to the Cash Flow tab Morningstar, Inc. All rights reserved. 7

8 2. Click Add to begin to create your cash flow. Notice that you have to have a Start and End Date and that there are four types of cash flows from the drop down to choose from. The new Minimum Cash-Flow Amount feature is applicable to % of most recent value and % of average wealth over n time periods. For demonstration purposes, we will use % of most recent value Morningstar, Inc. All rights reserved. 8

9 3. In this example, we are indicating that a minimum of $1000 in the cash flow amount is needed to apply a positive cash position of 5% of the value and the time range is from 2015 to Although, not shown, the cash flows will be based on an Annual Forecasting Frequency activated from the Basic tab in Forecasting Settings. Once complete, click OK Morningstar, Inc. All rights reserved. 9

10 4. As you can see, you have successfully applied cash flows to your target allocations. To view the impact, compare the results on page six to the output below (left image) and identify the differences when accounting for cash flows. The right image displays the actual cash flows. Keep in mind that your minimum, according to the settings, has to be $1000 and if it is not, then no inflows will be displayed in your view Morningstar, Inc. All rights reserved. 10

11 Minimum Rebalancing Amounts The Minimum Rebalancing Amount feature allows you to rebalance portfolios to the initial asset mix weight whenever the amount change for any asset class in the portfolio is greater than the specific amount. 1. Click on the Forecasting button to be taken to the Forecasting Settings window. Proceed to the Basic tab Morningstar, Inc. All rights reserved. 11

12 2. Go to the Rebalancing drop down and select Periodic by Amount to activate its settings Morningstar, Inc. All rights reserved. 12

13 3. Proceed to trigger your rebalancing by a specific amount for each asset class. In this example, we are indicating that once one or more asset classes change value by over $2,000 by the end of the period, then we will rebalance the asset mix. The frequency will be driven by the Annual Forecasting Frequency. Once complete, click OK Morningstar, Inc. All rights reserved. 13

14 4. As you can see, you have successfully applied a specific amount to rebalance when the value change of at least one asset class hits that amount. Compare the results from the previous pages vs the outputs below to identify the differences when applying your rebalancing parameters Morningstar, Inc. All rights reserved. 14