| | Growth Strategies | | | Our mission has long been to create great products that help investors reach their financial goals. In keeping with this mission, we are currently pursuing five key growth strategies, which we describe below. We review these strategies on a regular basis and refine them as we monitor changes in our business. | | We believe that individual investors, financial advisors, and institutional clients increasingly want integrated solutions as opposed to using different research tools for different parts of their portfolios. To help meet this need, our strategy is to focus our product offerings on our three major platforms:
 Morningstar.com® for individual investors;
Morningstar® Advisor Workstation for financial advisors; and
Morningstar Direct for institutional professionals.
These products all include integrated research and portfolio tools, allowing investors to use our proprietary information and analysis across multiple security types. With each platform, we believe we can continue expanding our reach with our current audience, as well as extending to reach new market segments.
With Morningstar.com, we’re continuing to expand the range of content and market updates on the site, including third-party content. We’ve also been focusing on mobile development and social networking, as well as expanding data and functionality to increase the site’s value to both registered users and Premium members. With Advisor Workstation, we plan to build on our large installed base by expanding our mid- and back-office capabilities, improving the product’s interface and design, and integrating real-time data and other functionality. With Morningstar Direct, we’re pursuing an aggressive development program to provide data and analysis on securities and investments around the world. We’re adding third-party data and content and enhancing our technology to allow the product to function as a purely web-based solution. We also plan to expand into new global markets, enhance our capabilities in portfolio management and accounting, and significantly increase the amount of equity research content and functionality. Our goal is to continue building or acquiring new databases for additional types of investments, including various types of funds outside the United States and other widely used investment products.
We currently provide extensive data on nearly 380,000 investments globally, including managed investment products, individual securities, capital markets data, real-time stock quotes from nearly all of the world’s major stock exchanges, and a live data feed that covers exchange-traded equities, derivatives, commodities, futures, foreign exchanges, precious metals, news, company fundamentals, and analytics.
Our data is the foundation for all of the products and services we offer. We focus on proprietary, value-added data, such as our comprehensive data on current and historical portfolio holdings for mutual funds and variable annuities. Within each database, we continuously update our data to maintain timeliness and expand the depth and breadth of coverage. Our strategy is to continuously expand our databases, focusing on investment products that are widely used by large numbers of investors. In particular, we’re focusing on expanding our fundamental equity data. We also strive to establish our databases as the pre-eminent choice for individual investors, financial advisors, and institutional clients around the world, as well as continuing to invest in world-class data quality, processing, and delivery.
Over the past several years, we’ve developed a series of proprietary indexes based on our investment data. The Morningstar® Indexes are rooted in our proprietary research and can be used for precise asset allocation and benchmarking and as tools for portfolio construction and market analysis. We’ve expanded the range of indexes we offer over the past three years and are working to expand our index business globally. We believe that our leadership position in independent investment research offers a competitive advantage that would be difficult for competitors to replicate. Our goal is to continue building investment insights that empower investors and focus our research efforts in four major areas:
Extend leadership position in fund research to additional markets outside the United States. Over the past several years, we have expanded our analyst coverage in fund markets outside of the United States. We’ve built an integrated team of locally based fund experts to expand our research coverage in additional markets around the world. As of December 31, 2010, we had nearly 100 fund analysts globally, including teams in North America, Europe, Asia, and Australia. We currently produce qualitative analyst research on more than 1,500 funds outside the United States.
Continue leveraging our capabilities in stocks. Our equity research complements our approach to mutual fund analysis, where we focus on analyzing the individual stocks that make up each fund’s portfolio. As of December 31, 2010, we provided analyst research on approximately 2,300 companies globally.
We’re committed to maintaining the broad, high-quality coverage we’ve become known for as one of the largest providers of independent equity research. We’re working to expand distribution of our equity research through a variety of channels, including through financial advisors, buy-side firms, and companies outside of the United States. We believe that investors’ increasing awareness of the value of independent research will strengthen our business over the long term. We’ve also expanded our proprietary stock database, which we view as an important complement to our analyst research.
Build business in fixed-income credit research. We began publishing research and ratings on corporate credit issuers in December 2009 and currently produce research and ratings on more than 720 corporate credit issuers. In 2010, we entered into our first credit research agreement with a major financial services firm to provide credit ratings and research to its 18,000 financial advisors. We view credit ratings as a natural extension of the equity research we’ve been producing for the past decade. We believe we have a unique viewpoint to offer on company default risk that leverages our cash-flow modeling expertise, proprietary measures like economic moat, and in-depth knowledge of the companies and industries we cover.
We’re including this research on our three major software platforms to provide investors with an additional perspective on fixed-income investments. We also plan to monetize the ratings through subscriptions to our institutional equity research clients, who have access to the forecasts, models, and scores underlying the ratings.
We also expanded our fixed-income capabilities with our May 2010 acquisition of Realpoint, a Nationally Recognized Statistical Rating Organization (NRSRO) that specializes in structured finance. Realpoint currently covers commercial mortgage-backed securities and plans to introduce research on residential mortgage-backed securities (RMBS) in 2011. We believe investors are looking for better research and analytics on RMBS and that we’re well-positioned to meet this need.
Enhance our retirement-income capabilities. As the baby boom generation approaches retirement, we believe investors will need more information to help them manage income during retirement, including tools focusing on retirement-income planning and long-term savings strategies. During 2010, our Ibbotson Associates subsidiary continued its work on adding longevity protection (through the use of variable annuities) to investors’ retirement portfolios. Ibbotson also rolled out a new target-date fund with one of its clients that incorporates annuities and is the first consultant to work on creating this type of product. We also expanded our analyst research on target-date and target-risk portfolios in 2010. We’ve developed several other retirement income tools and services through Morningstar® Advisor Workstation and our Investment Consulting area, and we plan to incorporate additional retirement income tools and services in other products over the next several years. The large number of managed investment products available has made assembling them into well-constructed portfolios a difficult task for many investors. Consequently, fund-of-funds offerings have seen strong growth within the mutual fund, variable annuity, and hedge fund industries. Cerulli Associates estimates that global multimanager assets—including publicly offered funds that invest in other funds as well as investment vehicles managed by multiple subadvisors—totaled approximately $1.7 trillion in 2010. We believe assembling and evaluating funds of funds is a natural extension of our expertise in understanding managed investment products.
Our fund-of-funds programs combine managed investment vehicles—typically mutual funds—in portfolios designed to help investors meet their financial goals. When we create portfolios made up of other funds, our goal is to simplify the investment process and help investors access portfolios that match their level of risk tolerance, time horizon, and long-term investment objectives. We draw on our extensive experience analyzing funds and combine quantitative research with a qualitative assessment of manager skill and investment style.
In April 2010, we expanded our investment management business by acquiring Old Broad Street Research Ltd, a premier provider of fund research, ratings, and investment consulting services in the United Kingdom. In July 2010, we acquired Seeds Group, a leading provider of investment consulting services and fund research in France.
We had a total of $107.2 billion in assets under advisement in our Investment Consulting business as of December 31, 2010. Our consulting business focuses on relationships and agreements where we act as a portfolio construction manager or asset allocation program designer for a mutual fund or variable annuity and receive a basis-point fee. We plan to continue building this business by expanding to reach new markets outside of the United States, expanding our capabilities in areas such as alternative investment strategies, developing more ways to incorporate risk protection and insurance, expanding to reach additional client segments, and focusing on performance and client support. In 2011, we plan to focus on unifying our Investment Consulting capabilities and operations to offer our clients the best combination of solutions and capabilities.
We also offer managed retirement account services through our Retirement Advice platform, which includes Morningstar® Retirement Manager and Advice by Ibbotson®, and had $19.6 billion in assets under management in our managed retirement accounts as of December 31, 2010. We offer these services for retirement plan participants who choose to delegate management of their portfolios to our managed account programs, which are quantitative systems that select investment options and make retirement planning choices for the participants. We believe retirement plan participants will continue to adopt managed accounts because of the complexity involved in retirement planning. We also plan to focus on unifying our Retirement Advice capabilities and operations in 2011 to offer our clients the best combination of solutions and capabilities.
Morningstar® Managed Portfolios is a fee-based discretionary asset management service that includes a series of mutual fund, exchange-traded fund, and stock portfolios tailored to meet specific investment time horizons and risk levels. As of December 31, 2010, we had $2.7 billion in assets under management invested with Morningstar Managed Portfolios. Our operations outside of the United States generated $157.1 million in revenue in 2010 compared with $129.2 million in 2009 and represent an increasing percentage of our consolidated revenue. Our strategy is to expand our non-U.S. operations (either organically or through acquisitions) to meet the increasing demand for wide-ranging, independent investment insight by investors around the globe. Because more than half of the world’s investable assets are located outside of the United States, we believe there are significant opportunities for us. Our strategy is to focus our non-U.S. sales efforts on our major products, including Morningstar® Advisor Workstation and Morningstar Direct, as well as opportunities such as real-time data, qualitative investment research and ratings, investment indexes, and consulting. We also plan to explore new regions, such as Latin America, Eastern Europe, and the Middle East; continue expanding our databases to be locally and globally comprehensive; introduce new products in markets where we already have operations; and expand our sales and product support infrastructure around the world. |
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