Morningstar Launches Direct Indexing Combining Market-Leading Technology and Investment Management

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Nov 01, 2022, 10:00 ET

New Offering Enables Portfolios to Be Tailored to Investors' Unique Needs

CHICAGO, Nov. 1, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, announced today that Morningstar Wealth launched Direct Indexing, an investment offering that draws from industry-leading research, technology, and insights across the Morningstar organization to help deliver greater personalization, automation, and tax efficiency for advisors and their investors. Morningstar Direct Indexing is unique in uniting extensive in-house capabilities—Morningstar's Investment Management, Morningstar Indexes, Morningstar Sustainalytics, and Morningstar Equity Research—to create and manage personalized investment strategies at scale. Direct Indexing portfolios will be made available through the Morningstar Wealth Platform to start.

"Advisors are looking for ways to meet client interest in new investment options, particularly those that allow customization and personalization. Morningstar Direct Indexing leverages the strengths of Morningstar to allow advisors the ability to engage in new and collaborative ways with their clients. Together they can intuitively and effectively tailor portfolios in several different ways and have transparency into the impact of those choices," said Daniel Needham, president, Morningstar Wealth. "This is the latest way Morningstar is innovating, guided by our mission to empower investor success."

Direct indexing allows advisors to build a portfolio that tracks a broad index efficiently while typically buying all, or a subset, of the index holdings. This approach makes direct ownership of underlying securities practical for more individuals, allowing them to personalize their holdings based on preferences and select additional services like tax-loss harvesting, tax-lot consideration, and holding period management.

The launch comes amid accelerating interest in direct indexing. Approximately 61 percent of advisors indicate they are using or considering direct indexing.¹ Other research suggests direct indexing will grow 12.4 percent annually from 2021 to 2026², exceeding the 11.3 percent annual growth projected for exchange-traded funds (ETFs)².

"For almost a year we have been engaging with a council of advisors who have helped us shape Morningstar Direct Indexing. Their practical insight and experience with clients guided our road map and development. In June, we launched a pilot program that put our Morningstar Direct Indexing into practice. Interest in the pilot program reached more than three times our initial targets," said Cindy Galiano, head of product, Investment Management, Morningstar Wealth. We are excited to now make this available to the market."

Direct Indexing is one of the first major product launches from Morningstar Wealth, a new group that combines managed portfolios from Morningstar's Investment Management group, portfolio management software Morningstar Office^sm, investment data aggregator ByAllAccounts^®, and the individual investor experience across Morningstar.com^®. Morningstar Wealth plans to introduce extra functionality and capabilities to advisors and enterprise firms over the coming year.

To learn more about Morningstar Direct Indexing, visit go.morningstar.com/directindexing.

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 owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $239 billion in assets under advisement and management as of September 30, 2022.

The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

The Morningstar Direct Indexing portfolios are offered by subsidiaries of Morningstar, Inc. that are authorized in the appropriate jurisdiction to provide consulting or advisory services. In the United States, those entities are Morningstar Investment Services LLC or Morningstar Investment Management LLC, both registered investment advisers. Morningstar Investment Management provides monitoring and maintenance of the Direct Indexing portfolios on behalf of Morningstar Investment Services. In the United States, Direct Indexing portfolios are intended for citizens or legal residents of the United States or its territories and can only be offered by a registered investment adviser or investment adviser representative.

Morningstar® Indexes are created and maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote any security or other investment option that tracks a Morningstar Index and bears no liability with respect to such securities or investment options.

Investment research from Morningstar Equity Research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with the U.S. Securities and Exchange Commission.

Sustainalytics is an environmental, social, and governance and corporate governance research, ratings, and analysis firm. Morningstar acquired Sustainalytics in 2020. Sustainalytics provides ESG scores on companies, which are evaluated within global industry peer groups, and tracks and categorizes ESG-related controversial incidents on companies. Morningstar uses Sustainalytics' company level ESG analytics to calculate ratings for managed products and indexes using Morningstar's portfolio holdings database.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations about future events or future financial performance. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue." These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. For us, these risks and uncertainties include, among others, failing to maintain and protect our brand, independence, and reputation; liability related to cybersecurity and the protection of confidential information, including personal information about individuals; liability for any losses that result from an actual or claimed breach of our fiduciary duties or failure to comply with applicable securities laws; compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, or our investment advisory, ESG, and index businesses; failing to respond to technological change, keep pace with new technology developments, or adopt a successful technology strategy; the failure to recruit, develop, and retain qualified employees and compensation expense associated with these activities in a period of inflation and rising wage scales in the markets where we operate; inadequacy of our operational risk management and business continuity programs in the event of a material disruptive event, including an outage of our database, technology-based products and services or network facilities; failing to differentiate our products and services and continuously create innovative, proprietary, and insightful financial technology solutions; prolonged volatility or downturns affecting the financial sector, global financial markets, and global economy and its effect on our revenue from asset-based fees and credit ratings business; failing to maintain growth across our businesses in today's fragmented geopolitical, regulatory and cultural world; liability relating to the information and data we collect, store, use, create, and distribute or the reports that we publish or are produced by our software products; the failure of acquisitions and other investments to be efficiently integrated and produce the results we anticipate; the impact of the current COVID-19 pandemic and government actions in response thereto on our business, financial condition, and results of operations; challenges faced by our non-U.S. operations, including the concentration of data and development work at our offshore facilities in China and India; our indebtedness could adversely affect our cash flows and financial flexibility; and the failure to protect our intellectual property rights or claims of intellectual property infringement against us. A more complete description of these risks and uncertainties can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. If any of these risks and uncertainties materialize, our actual future results and other future events may vary significantly from what we expect. We do not undertake to update our forward-looking statements as a result of new information or future events.

Media Relations Contact:
Scott Gilmore
Morningstar Wealth
773-664-9829
[email protected]

¹ Uncovering the product preferences of today's advisors," Broadridge Financial Services, September 2021.
² "Improving Client Experience: Customizing with Direct Indexing," Cerulli Associates, August 2021.

SOURCE Morningstar, Inc.