Morningstar Advisor - Spring 2008 - 94

Case Study | Morningstar DirectSM Performance Measurement: What You See May Not Be What You Get Does a one-year total return of 0.0% mean an investor broke even? Chasing Performance Consider this example. A person invests $100 in an exchange-traded fund at the beginning of the year, 10 shares at $10 per share. After six months, the net asset value (NAV) increases to $20 and the excited investor buys another five shares at $100. However, at year-end the NAV falls back to $10 and our very disappointed investor sells all 15 shares. The one-year total return is 0% because the price was identical at the beginning and the end of the year and there were no distributions. But that’s not what our investor experienced. He shelled out $200 but wound up with a mere $150. behavior, investor return can also shed light on how well fund families preserve the investor experience. Funds have a responsibility to promote sound investment strategies. If these companies encourage short-term trading and trendy funds, they may not be looking out for the investors’ longterm interests. Fund families that advertise short-term returns and promote high-risk funds likely will have funds with low investor return relative to total return. The Bottom Line If money managers have a responsibility to serve investors’ long-term interests, so do others selecting and monitoring investments on their behalf. Advisors, plan fiduciaries and consultants can use investor return as another screen when creating or evaluating a portfolio or lineup. Offering investments with a favorable investor return relative to total return can help reduce mistimed purchases and sales. Evaluate Returns Using Morningstar Direct Morningstar Direct is a global institutional research platform that provides in-depth performance and holdings analysis of investments. Institutions worldwide use Morningstar Direct to develop, select, and monitor investments that meet investors’ needs. This Web-based solution unites powerful analytics with the most timely, comprehensive Morningstar investment data and research available. Continuous data updates fuel rigorous research for product development, competitive analysis, marketing, investment selection, and performance evaluation. Use Investor Returns alongside other performance measures when analyzing and communicating results for your clients’ portfolios. Morningstar Direct Capabilities Peer Analysis Compare a full set of data points and search across investment types for precise benchmarking. Performance Evaluation Analyze thousands of discrete data points, including a range of customizable performance and risk statistics. Stock and Ownership Analysis Examine stock ownership trends within the portfolios of hedge funds, mutual funds, separate accounts, and institutional money managers. Output Generate professional reports, charts, and data tables. Data Universes Explore comprehensive information on open-end, closed-end, and exchangetraded funds; hedge funds, separate accounts; U.S. variable annuities and stocks; stock ownership; and market indexes. Risk-Free Trial Contact us today for a one-on-one demonstration and a 15-day trial to Morningstar Direct. 3 +1 866 229 0216 3 MorningstarDirect@morningstar.com 3 http://global.morningstar.com/MorningstarDirect A better measure of this typical investor experience is investor return, or a dollar-weighted return that captures the impact of cash in- and outflows over time. In our example above, the total return is 0%. But the six-month investor return is –17.71% and the annualized one-year investor return is –32.29%. These are the constant rates of return that reconcile the initial investments with the ending amount. A New Performance Metric Investor return measures the experience of the average investor. It is not one specific investor’s experience but rather a measure of the return earned collectively by all the investors in the fund. Investor return captures how the average investor fared over a period of time. Investor return can be found in Morningstar Direct. Smart Managers Pay Attention The gap between investor return and total return indicates how well investors timed their purchases and sales. In addition to revealing patterns of investor ©2008 Morningstar, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar. Marks used in conjunction with Morningstar products or services are the property of Morningstar or its subsidiaries.
http://global.morningstar.com/MorningstarDirect http://global.morningstar.com/MorningstarDirect

Morningstar Advisor - Spring 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Spring 2008

Morningstar Advisor - Spring 2008
Contents
Letter from the Editor
Inbox
Do You Use Annuities with Living Benefit Guarantees?
Managers Who Actively Enrich Shareholders
Staying Out of the Silos
Investment Briefs
Let’s Not All Become Fundamental Indexers Just Yet
Volatility Potential
Adding the Income Dimension
Do’s and Don’ts of RMDs
An Attractive Yield is Only Skin Deep
Mutual Funds Get in the Game
Beyond Target Date
The Last Holdout
A Bird of a Different Feather
First-Class Thinker
Sleep Like a Baby
Is Health Care Immune to a Recession?
Anatomy of a Mutual Fund Disaster
Embrace Your Inner Contrarian
Risks Worth Taking
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar and on MorningstarAdvisor.com
Back to the Garden
Morningstar Advisor - Spring 2008 - Intro
Morningstar Advisor - Spring 2008 - Morningstar Advisor - Spring 2008
Morningstar Advisor - Spring 2008 - Cover2
Morningstar Advisor - Spring 2008 - 1
Morningstar Advisor - Spring 2008 - 2
Morningstar Advisor - Spring 2008 - Contents
Morningstar Advisor - Spring 2008 - 4
Morningstar Advisor - Spring 2008 - 5
Morningstar Advisor - Spring 2008 - 6
Morningstar Advisor - Spring 2008 - Letter from the Editor
Morningstar Advisor - Spring 2008 - 8
Morningstar Advisor - Spring 2008 - Inbox
Morningstar Advisor - Spring 2008 - Do You Use Annuities with Living Benefit Guarantees?
Morningstar Advisor - Spring 2008 - 11
Morningstar Advisor - Spring 2008 - Managers Who Actively Enrich Shareholders
Morningstar Advisor - Spring 2008 - 13
Morningstar Advisor - Spring 2008 - 14
Morningstar Advisor - Spring 2008 - Staying Out of the Silos
Morningstar Advisor - Spring 2008 - 16
Morningstar Advisor - Spring 2008 - 17
Morningstar Advisor - Spring 2008 - Investment Briefs
Morningstar Advisor - Spring 2008 - 19
Morningstar Advisor - Spring 2008 - 20
Morningstar Advisor - Spring 2008 - 21
Morningstar Advisor - Spring 2008 - Let’s Not All Become Fundamental Indexers Just Yet
Morningstar Advisor - Spring 2008 - 23
Morningstar Advisor - Spring 2008 - 24
Morningstar Advisor - Spring 2008 - 25
Morningstar Advisor - Spring 2008 - Volatility Potential
Morningstar Advisor - Spring 2008 - 27
Morningstar Advisor - Spring 2008 - 28
Morningstar Advisor - Spring 2008 - 29
Morningstar Advisor - Spring 2008 - 30
Morningstar Advisor - Spring 2008 - 31
Morningstar Advisor - Spring 2008 - Adding the Income Dimension
Morningstar Advisor - Spring 2008 - 33
Morningstar Advisor - Spring 2008 - 34
Morningstar Advisor - Spring 2008 - 35
Morningstar Advisor - Spring 2008 - Do’s and Don’ts of RMDs
Morningstar Advisor - Spring 2008 - 37
Morningstar Advisor - Spring 2008 - 38
Morningstar Advisor - Spring 2008 - 39
Morningstar Advisor - Spring 2008 - An Attractive Yield is Only Skin Deep
Morningstar Advisor - Spring 2008 - 41
Morningstar Advisor - Spring 2008 - Mutual Funds Get in the Game
Morningstar Advisor - Spring 2008 - 43
Morningstar Advisor - Spring 2008 - 44
Morningstar Advisor - Spring 2008 - 45
Morningstar Advisor - Spring 2008 - 46
Morningstar Advisor - Spring 2008 - Beyond Target Date
Morningstar Advisor - Spring 2008 - 48
Morningstar Advisor - Spring 2008 - 49
Morningstar Advisor - Spring 2008 - 50
Morningstar Advisor - Spring 2008 - 51
Morningstar Advisor - Spring 2008 - 52
Morningstar Advisor - Spring 2008 - The Last Holdout
Morningstar Advisor - Spring 2008 - 54
Morningstar Advisor - Spring 2008 - 55
Morningstar Advisor - Spring 2008 - 56
Morningstar Advisor - Spring 2008 - 57
Morningstar Advisor - Spring 2008 - 58
Morningstar Advisor - Spring 2008 - 59
Morningstar Advisor - Spring 2008 - A Bird of a Different Feather
Morningstar Advisor - Spring 2008 - 61
Morningstar Advisor - Spring 2008 - 62
Morningstar Advisor - Spring 2008 - 63
Morningstar Advisor - Spring 2008 - First-Class Thinker
Morningstar Advisor - Spring 2008 - 65
Morningstar Advisor - Spring 2008 - 66
Morningstar Advisor - Spring 2008 - 67
Morningstar Advisor - Spring 2008 - Sleep Like a Baby
Morningstar Advisor - Spring 2008 - 69
Morningstar Advisor - Spring 2008 - 70
Morningstar Advisor - Spring 2008 - 71
Morningstar Advisor - Spring 2008 - 72
Morningstar Advisor - Spring 2008 - 73
Morningstar Advisor - Spring 2008 - Is Health Care Immune to a Recession?
Morningstar Advisor - Spring 2008 - 75
Morningstar Advisor - Spring 2008 - Anatomy of a Mutual Fund Disaster
Morningstar Advisor - Spring 2008 - 77
Morningstar Advisor - Spring 2008 - Embrace Your Inner Contrarian
Morningstar Advisor - Spring 2008 - 79
Morningstar Advisor - Spring 2008 - Risks Worth Taking
Morningstar Advisor - Spring 2008 - 81
Morningstar Advisor - Spring 2008 - 82
Morningstar Advisor - Spring 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Spring 2008 - 84
Morningstar Advisor - Spring 2008 - 85
Morningstar Advisor - Spring 2008 - 86
Morningstar Advisor - Spring 2008 - 87
Morningstar Advisor - Spring 2008 - 88
Morningstar Advisor - Spring 2008 - Undervalued Stocks
Morningstar Advisor - Spring 2008 - 90
Morningstar Advisor - Spring 2008 - 91
Morningstar Advisor - Spring 2008 - Most Popular Variable Annuities
Morningstar Advisor - Spring 2008 - 93
Morningstar Advisor - Spring 2008 - 94
Morningstar Advisor - Spring 2008 - New at Morningstar and on MorningstarAdvisor.com
Morningstar Advisor - Spring 2008 - Back to the Garden
Morningstar Advisor - Spring 2008 - Cover3
Morningstar Advisor - Spring 2008 - Cover4
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