Morningstar Advisor - December 2012/January 2013 - (Page 7)

Letter From the Editor Dynamics of Funds of Funds The talk of this year’s Morningstar ETF Invest Conference in October was exchangetraded-fund managed portfolios. Over the course of the day-and-a-half gathering attended mostly by financial advisors, five panels were devoted to these strategies, which are essentially separate accounts made up of ETFs. This focus came on the heels of Morningstar reporting that assets of the 490 strategies the firm tracks increased 30% in the first six months of 2012 to $50 billion. The ETF-managed-portfolio business is hot. To us, however, the growth of ETF managed portfolios is interesting for a different reason: It is part of the larger trend of investors outsourcing their asset-allocation decisions and investment selections to professionals who manage dynamic funds of funds. Whether it’s a target-date fund, an age-based 529 plan, ETF managed strategy, or even a fund of funds such as PIMCO All Asset PAAIX, investors are gravitating toward offerings that dynamically alter their asset allocations based on such things as macroeconomic conditions, risk-factor modeling, or the age of the investor. And advisors are leading the charge. The asset flows into ETF managed portfolios are proof of that. So are the aged-based options that are cropping up in advisor-sold 529 plans. Morningstar now has an entire fund-analyst division devoted solely to covering funds of funds. For this issue, the leader of that group, Laura Pavlenko Lutton, presents an overview of this new era (“Outsourcing Asset Allocation,” Page 36). She generally likes what she sees, viewing the move to funds of funds as a step forward for investors, who can easily satisfy their diversification goals. However, she’s concerned that as these vehicles are gaining in popularity, their makeup is becoming more complex. Many funds seem to be experimenting with their assetallocation ideas, sometimes dramatically changing allocations midstream; others are turning to alternative asset classes in attempts to produce better risk-adjusted returns. Next, Andrew Gogerty, the analyst responsible for Morningstar’s coverage of ETF managed portfolios, looks into why these strategies are so appealing to advisors (“ETF Managed Portfolios on the Rise,” Page 41). He views it as a natural outgrowth of the ETF boom. Advisors want greater access to liquid, low-cost investments with a focus on asset allocation and diversification—traits that ETFs are tailor-made to deliver. Finally, analyst Kailin Liu examines the extent to which dynamic funds of funds have invaded the 529 market (“Age-Based Options Take Over 529 Industry,” Page 46). The last holdout? American Funds. One appeal Liu finds in some of these programs, such as the Utah Educational Savings Plan, is that advisors can create the asset allocation and then outsource the rebalancing. It’s clear that dynamic funds of funds have massive appeal to advisors in today’s investing environment. But like any phenom in the investing world, whether they have staying power will be determined by their ability to deliver the long-term results advisors and their clients expect. Stay tuned. Jerry Kerns Follow Jerry on Twitter @ jerrykerns MorningstarAdvisor.com 7 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - December 2012/January 2013

Morningstar Advisor - December2012/January 2013
Contents
Contributors
Letter From the Editor
What Stands Between Me and Stupid
Why Do You Use Dynamic Funds of Funds?
Serving Clients and Community
How to Pick an ETF Managed Portfolio Strategy
Tactical View of Risk
Investments á la Carte
Investment Briefs
Unbundling ETF Managed Portfolios
Risks Loom Over Telecom Industry
Outsourcing Asset Allocation
ETF Managed Portfolios on the Rise
Age-Based Options Take Over 529 Industry
How the Landscape for Advisors Is Changing
Mark Egan Embraces Volatility
Alpha, Beta, and Now … Gamma
Performance Gaps
Gains in Momentum
Companies Where Management Teams Add Value
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Once and Future King

Morningstar Advisor - December 2012/January 2013

https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019winter
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019fall
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019summer
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019spring
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20191201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
https://www.nxtbook.com/nxtbooks/morningstar/investorconference2012
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
https://www.nxtbookmedia.com