|By PR Newswire||
|April 21, 2014 10:30 AM EDT||
CHICAGO, April 21, 2014 /PRNewswire/ -- Morningstar Investment Management, a unit of Morningstar, Inc. (NASDAQ: MORN), today published a new research paper, "No Portfolio is an Island," which examines how job, home location, and pension benefits, such as Social Security, affect an investor's optimal asset allocation. This paper is an extension of Morningstar Investment Management's research and patented methodology for incorporating non-financial assets like human capital—an individual's future potential savings—into the optimal asset allocation process. This paper brings a more nuanced perspective to individual investors' unique circumstances and lays out a framework for creating even more personalized portfolios. Two Morningstar Investment Management researchers, David Blanchett, head of retirement research, and Philip Straehl, senior research consultant and portfolio manager, co-authored the paper.
"Financial assets, such as stocks and bonds, are only one component of an investor's total economic worth. Other assets, such as human capital, real estate, and pensions, often represent a significant portion of an investor's total wealth, but are not frequently considered when building portfolios despite the fact that they share common risks with financial assets," Blanchett said.
In the paper, the researchers demonstrate that industry-specific human capital, region-specific housing wealth, and pensions have statistically significant exposures to certain asset classes and risk factors, and investors should consider them when building portfolios. Through a series of optimizations, the Morningstar Investment Management researchers compare the asset allocation differences between portfolios that are only optimized for financial assets versus portfolios that consider total wealth. They determine that the optimal allocation varies materially when vocation, location, and pension benefits are considered, with average asset class differences exceeding 20 percent.
Other findings include:
- Given the bond-like nature of human capital, portfolios that incorporate this asset generally tend to have lower allocations to intermediate- and long-term bonds and higher allocations to large-growth U.S. equities and commodities.
- Investors who work in the manufacturing, utilities, and government sectors saw the largest changes to their optimal portfolios after the researchers factored industry-specific human capital into the asset allocation optimization. Their total-wealth optimized portfolios were significantly more aggressive than average, largely due to lower human capital volatility in these professions.
- Housing wealth has less effect on the optimal asset allocation than industry-specific human capital, but still plays an important role. Of the 10 cities studied, home owners in Las Vegas had the largest changes to their optimal portfolios after the researchers factored regional-specific housing wealth into the portfolio. Their total-wealth optimized portfolios were generally more conservative than average given the historically volatile Las Vegas housing market, and had larger allocations to high-yield and non-U.S. bonds as well as small-cap value equities.
- Because industry-specific human capital has such a significant effect on the optimal portfolio, younger investors who naturally have higher levels of human capital saw larger changes to their portfolios than older investors when total wealth was considered in the optimization.
"Each investor's situation is unique and his or her financial portfolio should reflect those distinct risk factors. The Morningstar research shows, for example, that if you're a banker in Texas, your human capital and real estate wealth are tied to the financial and energy sectors as well as to large-cap value stocks, so you would want to reduce exposure to those asset classes in your financial portfolio," Straehl said. "Our findings have important implications for individual and custom target-date model portfolio construction, and suggest that techniques that ignore human capital and outside assets are insufficient. A holistic definition of wealth is necessary to build truly efficient portfolios."
To read more research from Morningstar, click here.
About Morningstar Investment Management
The Morningstar Investment Management unit creates custom investment solutions that combine award-winning research and global resources with the proprietary data of Morningstar, Inc. Morningstar Investment Management includes 11 investment advisory entities around the world that provide comprehensive retirement, investment advisory, and portfolio management services for financial institutions, plan sponsors, and advisors. As of Dec. 31, 2013, Morningstar's investment advisory subsidiaries had approximately $159 billion in assets under advisement and management, including about $11 billion in solutions such as custom target-date model portfolios.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries. The company has operations in 27 countries.
©2014 Morningstar, Inc. All Rights Reserved.
Alexa Auerbach, 312-696-6481 or [email protected]
SOURCE Morningstar, Inc.
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
Dec. 3, 2016 05:45 AM EST Reads: 6,905
The WebRTC Summit New York, to be held June 6-8, 2017, at the Javits Center in New York City, NY, announces that its Call for Papers is now open. Topics include all aspects of improving IT delivery by eliminating waste through automated business models leveraging cloud technologies. WebRTC Summit is co-located with 20th International Cloud Expo and @ThingsExpo. WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web ...
Dec. 3, 2016 05:30 AM EST Reads: 1,194
Redis is not only the fastest database, but it has become the most popular among the new wave of applications running in containers. Redis speeds up just about every data interaction between your users or operational systems. In his session at 18th Cloud Expo, Dave Nielsen, Developer Relations at Redis Labs, shared the functions and data structures used to solve everyday use cases that are driving Redis' popularity.
Dec. 3, 2016 04:15 AM EST Reads: 3,414
20th Cloud Expo, taking place June 6-8, 2017, at the Javits Center in New York City, NY, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy.
Dec. 3, 2016 04:15 AM EST Reads: 1,704
Internet-of-Things discussions can end up either going down the consumer gadget rabbit hole or focused on the sort of data logging that industrial manufacturers have been doing forever. However, in fact, companies today are already using IoT data both to optimize their operational technology and to improve the experience of customer interactions in novel ways. In his session at @ThingsExpo, Gordon Haff, Red Hat Technology Evangelist, will share examples from a wide range of industries – includin...
Dec. 3, 2016 02:30 AM EST Reads: 1,518
WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web communications world. The 6th WebRTC Summit continues our tradition of delivering the latest and greatest presentations within the world of WebRTC. Topics include voice calling, video chat, P2P file sharing, and use cases that have already leveraged the power and convenience of WebRTC.
Dec. 3, 2016 02:15 AM EST Reads: 1,489
Without lifecycle traceability and visibility across the tool chain, stakeholders from Planning-to-Ops have limited insight and answers to who, what, when, why and how across the DevOps lifecycle. This impacts the ability to deliver high quality software at the needed velocity to drive positive business outcomes. In his general session at @DevOpsSummit at 19th Cloud Expo, Phil Hombledal, Solution Architect at CollabNet, discussed how customers are able to achieve a level of transparency that e...
Dec. 3, 2016 02:15 AM EST Reads: 730
"We build IoT infrastructure products - when you have to integrate different devices, different systems and cloud you have to build an application to do that but we eliminate the need to build an application. Our products can integrate any device, any system, any cloud regardless of protocol," explained Peter Jung, Chief Product Officer at Pulzze Systems, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 3, 2016 01:45 AM EST Reads: 765
Much of the value of DevOps comes from a (renewed) focus on measurement, sharing, and continuous feedback loops. In increasingly complex DevOps workflows and environments, and especially in larger, regulated, or more crystallized organizations, these core concepts become even more critical. In his session at @DevOpsSummit at 18th Cloud Expo, Andi Mann, Chief Technology Advocate at Splunk, showed how, by focusing on 'metrics that matter,' you can provide objective, transparent, and meaningful f...
Dec. 3, 2016 01:45 AM EST Reads: 4,531
"We are the public cloud providers. We are currently providing 50% of the resources they need for doing e-commerce business in China and we are hosting about 60% of mobile gaming in China," explained Yi Zheng, CPO and VP of Engineering at CDS Global Cloud, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 3, 2016 01:15 AM EST Reads: 853
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at 20th Cloud Expo, Ed Featherston, director/senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
Dec. 3, 2016 12:30 AM EST Reads: 1,519
Between 2005 and 2020, data volumes will grow by a factor of 300 – enough data to stack CDs from the earth to the moon 162 times. This has come to be known as the ‘big data’ phenomenon. Unfortunately, traditional approaches to handling, storing and analyzing data aren’t adequate at this scale: they’re too costly, slow and physically cumbersome to keep up. Fortunately, in response a new breed of technology has emerged that is cheaper, faster and more scalable. Yet, in meeting these new needs they...
Dec. 3, 2016 12:15 AM EST Reads: 1,752
"Once customers get a year into their IoT deployments, they start to realize that they may have been shortsighted in the ways they built out their deployment and the key thing I see a lot of people looking at is - how can I take equipment data, pull it back in an IoT solution and show it in a dashboard," stated Dave McCarthy, Director of Products at Bsquare Corporation, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 2, 2016 11:15 PM EST Reads: 903
@DevOpsSummit taking place June 6-8, 2017 at Javits Center, New York City, is co-located with the 20th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. @DevOpsSummit at Cloud Expo New York Call for Papers is now open.
Dec. 2, 2016 10:30 PM EST Reads: 1,730
"We are an all-flash array storage provider but our focus has been on VM-aware storage specifically for virtualized applications," stated Dhiraj Sehgal of Tintri in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 2, 2016 08:30 PM EST Reads: 398