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Tool helps analyse portfolios

Morningstar has launched a new global risk model that will help financial advisers understand an investment’s factor exposures.

Tuesday, August 9th 2016, 6:00AM

by Susan Edmunds

A spokesman said any advisers using Morningstar Direct would be able to use the model to do more sophisticated analysis to get a better gauge of the risk of their investment stocks or portfolio.

“They can use the model to research securities and make more informed investment decisions about risk and suitability at a more granular level.”

The model has 36 factors aimed at analysing the sources of return or risk for a stock or portfolio, including style, sector, region and currency.  Six are based on Morningstar ratings.
The model covers 40,000 stocks and 10,000 equity funds. Morningstar said it was aimed at helping investors make more informed decisions.

"Risk analysis is paramount to the investment decision-making process. Our model uses unique factors such as sustainable competitive advantage and ownership data to provide a powerful lens with which to understand the risk of a stock or portfolio," said head of asset management software Warren Miller.

"In addition, our risk model methodology incorporates ‘fat tails', or extreme events, among investment returns when forecasting the distribution of future returns, instead of relying on normal distribution.

"The model will enable clients to perform more of their workflow within a single piece of software, providing significant efficiency gains," he said.

Morningstar also said that it planned to expand the risk model to additional asset classes in the future and would add related factors to its data feeds later this year.

Tags: Morningstar

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