Morningstar - Q1 2023 - 17

need the help of market appreciation and
risk-taking. U.S. investors allocate less of their
portfolios to cash than most investors in
other markets.
Consumer choice has flourished in this individualcentric
environment. The volume of options
when it comes to mutual funds and exchangetraded
funds dominates those of other
markets. U.S. investors still largely stick to those
standbys when building their portfolios.
Directly investing in securities is also common,
helped along by a tax code that encourages
it. Product, technology, and marketing innovations
around models, direct indexing, and separately
managed accounts for the masses will help ensure
that these investments and product vehicles
remain key for U.S. investors.
In other markets where the workplace retirement
system is built around individual definedcontribution
accounts, people become accustomed
to taking market risk early in their careers, which
tends to make them more comfortable with
market volatility. Investors in these countries-
such as Australia, New Zealand, and the United
Kingdom-also tend to build or be defaulted
into more-aggressive portfolios with higher equity
weightings and less bond and cash exposure.
In contrast, in markets with defined-benefit plans
and, in some cases, supported by universal
healthcare and a comprehensive social safety net,
investors are typically more conservative. This
includes countries such as France, Germany, and
Japan. In these markets, people tend to start
investing later, if at all, and they also have
fewer assets to invest after payments for taxes,
social security, and pensions.
Mutual funds have become the dominant
investment vehicle in countries with definedcontribution
retirement accounts, such
as the 401(k) in the U.S., KiwiSaver in New Zealand,
and superannuation in Australia. But in many
other markets, they play second fiddle or are even
relegated to the back row of portfolio options.
In Asia, direct equities are the preferred choice
for taking risk, followed by a variety of products.
For example, Hong Kong investors often use
foreign exchange, and Japanese portfolios
tend to feature annuities. Chinese portfolios often
include wealth-management products,
and Indian investors rely more on fixed-income
investments and annuities before funds.
In Europe, different types of cash and fixed-income
investments as well as insurance products
feature often in portfolios.
Globally, real estate typically makes up the
biggest part of nonfinancial asset wealth and is
the primary reason investors take on meaningful
debt, especially in highly indebted markets
such as Australia, Canada, China, Hong Kong, and
New Zealand. European investors tend to
prefer building wealth through real estate rather
than through financial markets. In India,
investments such as real estate and gold-often
in physical form-trump stocks and funds
in popularity.
One common factor across the countries we
analyzed is that investors prefer to invest close to
home. Home-market bias is also driven by
accessibility and the need to avoid currency risk,
but countries' level of home bias varied. U.S.
investors do favor local stocks, but the difference
to the world index is smaller because of the
country's high weight in global markets. At the
other extreme are countries like China and
India, where capital controls nudge people to
invest almost exclusively in the home market, even
though their index weight is small.
While multiple factors influence the differences
in portfolio-building habits, one thing is consistent
among the more risk-tolerant markets: a more
portfolio-driven approach to financial advice.
This includes markets like Australia, Canada, New
Zealand, the U.K., and the U.S., where advice
starts more often from a strategic asset-allocation
perspective rather than the suitability
assessment of individual investment products. This
broader perspective helps investors understand
whether their total risk is appropriate for
the returns that their financial goals require.
Matias Möttölä, CFA, is a director at Morningstar EMEA.
Wing Chan is head of manager research at Morningstar Asia.
PitchBook Introduces
'Venture Growth'
Methodology
AMERICAS
United States
The past decade has been a whirlwind for
venture capital. The number of deals has increased,
of course, but a large majority of the capital
investment, and the broader change in the
market, has come from the late stage (for more
mature companies with proven growth
and revenue). During 2021, $237.2 billion was
invested in the late stage in the United States,
roughly 110% higher than the year before
and more than two thirds of the total capital
investment in the market.
To keep the PitchBook dataset in line with
market trends and the natural changes in venture
capital over the past decade, we are introducing
a methodology that will capture companies
and deals that fall into risk profiles not traditionally
associated with venture. Called venture growth,
this new stage will help define the true
venture market and enable a more thorough and
complete analysis of venture capital. It will
be included alongside our angel, seed, early-stage,
and late-stage methodologies. None of
those methodologies will change; however,
venture growth will be further into the venture
lifecycle than the late stage.
The risk/reward profile of venture capital is
distinct from other investment strategies. Startups
often fail. Nearly one fourth of companies
that make it to Series A go out of business. Our
estimates show that 12.1% of companies
that raise a Series D round even fail. Investment
losses can be 100%, and the illiquidity in the
market means investors may have no other option
than to watch their investment falter. But
this is also a broad generalization of venture
capital. The risks of a seed investment also differ
greatly from the risks of investment in a
Series D round, which also differ from those
of a Series F, pre-IPO round.
morningstar.com/products/magazine
17
https://www.morningstar.com/authors/1574/matias-mttl http://www.morningstar.com/products/magazine

Morningstar - Q1 2023

Table of Contents for the Digital Edition of Morningstar - Q1 2023

Contents
Morningstar - Q1 2023 - Cover1
Morningstar - Q1 2023 - Cover2
Morningstar - Q1 2023 - Contents
Morningstar - Q1 2023 - 2
Morningstar - Q1 2023 - 3
Morningstar - Q1 2023 - 4
Morningstar - Q1 2023 - 5
Morningstar - Q1 2023 - 6
Morningstar - Q1 2023 - 7
Morningstar - Q1 2023 - 8
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Morningstar - Q1 2023 - 11
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Morningstar - Q1 2023 - 13
Morningstar - Q1 2023 - 14
Morningstar - Q1 2023 - 15
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Morningstar - Q1 2023 - 17
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Morningstar - Q1 2023 - 21
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Morningstar - Q1 2023 - Cover3
Morningstar - Q1 2023 - Cover4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q1
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https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
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https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
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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
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https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
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https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
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