Morningstar Announces Methodology Changes for the Morningstar® Wide Moat Focus Index and Morningstar® Global ex-US Moat Focus Index™

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May 27, 2016, 10:53 ET

CHICAGO, May 27, 2016 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, is making methodology changes designed to reduce portfolio turnover and increase capacity of the flagship Morningstar® Wide Moat Focus Index and Morningstar® Global ex-US Moat Focus Index™.

Effective June 17, Morningstar will make changes to the methodology of both indexes, including the number of index constituents, reconstitution schedule, and policies regarding turnover buffers and country/sector caps. Morningstar will:

Divide the Morningstar Wide Moat Focus Index into two sub-portfolios, each containing the same set of 40 stocks.
Divide the Morningstar Global ex-US Moat Focus Index into two sub-portfolios, each containing the same set of 50 stocks.
Reconstitute both indexes semi-annually with a quarterly staggering schedule. Previously, Morningstar reconstituted these indexes quarterly. Going forward for each index, Morningstar will reconstitute one sub-portfolio in December and June and the other in March and September. As a result, the overall number of index constituents will vary.
Implement a turnover buffer for the Morningstar Wide Moat Focus Index. The company will give a preference to current index constituents if they are within a 50 percent buffer of the most undervalued stocks in the universe with Wide Morningstar® Economic Moat™ Ratings.
Loosen the turnover buffer for the Morningstar Global ex-US Moat Focus Index. The company will give a preference to current index constituents if they are within a 50 percent buffer of the most undervalued stocks in the universe with Wide or Narrow Morningstar® Economic Moat™ Ratings. Previously, index constituents within a 25 percent buffer of the most undervalued stocks were given a preference.
Change the country and sector capping policy for the Morningstar Global ex-US Moat Focus Index. Exposure to any Morningstar country/sector shall not exceed 40 percent of index weight. If exposure of the reference benchmark to a country/sector exceeds 30 percent, the index may maintain exposure to that country/sector that is 10 percentage points higher than the benchmark weight. Previously, the maximum weight of an individual country or sector in the index was capped at three times its corresponding weight in the benchmark or 25 percent, whichever was higher.
Implement a sector cap for the Morningstar Wide Moat Focus Index. The index's policy will reflect the same changes instituted for the Morningstar Global ex-US Moat Focus Index.
Implement a liquidity filter of $5 million applicable to potential additions to the Morningstar Global ex-US Moat Focus Index.

Sanjay Arya, head of Morningstar Global Indexes, said, "After careful consideration and in consultation with active market participants and clients, we are making these changes to enhance investment capacity and reduce portfolio turnover of the indexes."

Historical back-tests and the live track record for the indexes are not affected by these changes. Morningstar will not restate historical/live index levels.

Introduced in 2002, the Morningstar Indexes include a broad range of traditional beta global equity, fixed income, and commodity indexes that are also combined to form an asset allocation index series. Morningstar also offers a series of active equity indexes that draw on the equity, fund, and asset allocation research across the company. Currently, 60 investment products track Morningstar Indexes globally. For more information, visit http://indexes.morningstar.com.

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 525,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on nearly 18 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 investment advisory subsidiaries, with more than $180 billion in assets under advisement and management as of March 31, 2016. The company has operations in 27 countries.

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SOURCE Morningstar, Inc.