Morningstar Introduces Global Risk Model to Help Investors Analyze Stocks and Equity Portfolios

London and Chicago, IL - 5 July 2016

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today introduced its first Global Risk Model with 36 factors across style, sector, region, and currency characteristics to help investors understand an investment’s factor exposures and to forecast the future return distribution of individual stocks and equity portfolios. The company plans to eventually expand the risk model to additional asset classes.

Morningstar’s Global Risk Model has 36 different factors that help decompose the sources of return and risk for a stock or a portfolio. Six of the 36 factors are based on Morningstar’s proprietary ratings: Quantitative Fair Value Estimate, Morningstar® Quantitative Economic Moat™ Rating, Quantitative Uncertainty Rating, Quantitative Financial Health, Ownership Risk, and Ownership Popularity. A list of all 36 factors in Morningstar’s Global Risk Model is available online.

“Risk analysis is paramount to the investment decision-making process. Our model uses unique factors such as sustainable competitive advantage and ownership data to provide a powerful lens with which to understand the risk of a stock or portfolio. In addition, our risk model methodology incorporates ‘fat tails,’ or extreme events, among investment returns when forecasting the distribution of future returns, instead of relying on a normal distribution,” Warren Miller, head of asset management software for Morningstar, said. “Investors can use the risk model to research securities and construct portfolios to make more informed investment decisions about risk and suitability, at a more granular level.”

The model evaluates more than 40,000 stocks and 10,000 equity fund portfolios in Morningstar’s database and then builds a comprehensive forecast of future returns for various time horizons based on all 36 factor exposures. In addition, the Global Risk Model can assess an equity portion of a client’s multiasset portfolio. Investors can screen individual stocks or equity funds or make comparisons based on any of the factors. Morningstar updates the factor exposures and forecasts daily.

Morningstar’s Warren Miller and Lee Davidson, head of quantitative research, will host a webinar about the new Global Risk Model on Thursday, July 14 at 1 p.m. CT.

“Our new risk model is part of our continuing commitment to deliver more value to investors through our flagship web-based platform. The model will enable clients to perform more of their workflow within a single piece of software, providing significant efficiency gains,” Miller said.

The Global Risk Model and related data points are initially available in Morningstar DirectSM, the company’s web-based global investment analysis platform for institutional investors. The company plans to add the risk model and related factors to its data feeds later this year. 

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