Whether you are seeking 401(k) guidance or want to compare investment philosophies with others, Morningstar's Portfolio Sharing enables you to get feedback, ratings, and new perspectives on your holdings and to share portfolio management ideas with the Morningstar community of investors.
This guide outlines how to use Portfolio Sharing as well as the methodology behind the Morningstar Rating™ for Portfolios.
Many members of the Morningstar community already share their portfolios on Discuss in order to debate what to buy or sell next, swap allocation strategies, and compare return and yield growth. Now, through a few clicks of the mouse, you'll be able to quickly and easily share with the Discuss community any (or all) of your Portfolio Manager transaction portfolios. (Holdings and percentages are shared, while investment amounts are hidden to protect privacy.)
With Portfolio Sharing, you'll also enjoy new Morningstar ratings and analytics on your portfolio, and a ready interface to interact with your fellow investors. For each shared portfolio, we will provide an Instant X-Ray analysis, a Growth of $10,000 graph, trailing returns over multiple periods, a style (category) designation, turnover data, yield, allocation type, and a Morningstar Rating™ for Portfolios. The Rating for Portfolios examines risk-adjusted returns using a methodology similar to the Morningstar Rating for Funds. You can discuss any shared portfolio via an associated blog or ask the portfolio owner a question directly in his or her blog.
Browsing Shared Portfolios
Within Discuss, a suitcase icon after a user's name indicates that he or she has shared a portfolio (or portfolios) with the community. Click the suitcase to view the portfolio, or, to see all shared portfolios, click the Sharing tab above. The options in the left margin of the Portfolio Sharing page allow you to find portfolios that meet certain criteria, such as all conservative allocation or 5-star portfolios. Clicking the portfolio name will pull up a snapshot of the portfolio. Clicking the column headings (Name, Morningstar Rating, etc.) will sort on those fields.
Similar to Morningstar.com's fund and stock data reports, the shared portfolio snapshot page outlines each portfolio's performance, strategy, holdings, and more. Favorites and Contact dropdowns are available to learn more about the portfolio's manager, as are four tabs that outline Key Stats, Strategy, Blog Q&A, and Blog Posts related to the portfolio. The Key Stats tab highlights a number of unique data points, summarized below:
||Morningstar Rating: A quick snapshot of how a portfolio has balanced risk and return in the past. We calculate a portfolio's star rating relative to open-end mutual funds in the same category. Portfolios with less than one year of history are not rated. See Morningstar Rating™ for Portfolios below to learn more about our methodology.
||Morningstar Category: The principal investment approach of a portfolio based on its current underlying securities, portfolio statistics, and compositions.
||Allocation: How conservative or aggressive a portfolio is, based on its underlying asset allocation.
||Turnover: A loose representation of the number of portfolio holdings that have changed over the past year. Turnover is calculated by dividing the total sales or purchases, whichever is less, by the average monthly assets for the year and gives an idea of how long underlying holdings have been retained. As an example, a turnover of 25% indicates that, on average, holdings are retained for four years.
||Performance: A comparison of a portfolio's risk-adjusted return against open-end mutual funds in the same category. Due to fundamental differences between investors' portfolios and fund portfolios, this figure is just a rough estimate of how well a portfolio ranks against professionally run mutual funds.
||Group Membership: Which groups, if any, this portfolio is a member of. Clicking the name of a group allows you to see all of that group's members.
Share a Portfolio
Many of our users track model portfolios in addition to their own personal holdings. Others may have multiple portfolios for different objectives. All of these make great candidates for shared portfolios, as you can solicit feedback from other investors as well as get a star rating to better compare portfolios side by side. Share one or more of your portfolios by clicking the Profile tab (start with the Join tab if you don't have a Discuss account), then select Portfolio Sharing to see a list of your transaction portfolios. When you select a portfolio to share, you can enter a name and strategy, join a group, opt to hide your star rating, or limit your portfolio to just your favorite users.
The groups feature allows you to join investment clubs and contests for easy comparisons against other group members. The best way to find groups you may want to join is to scan existing portfolios of interest to see if they are part of a group. To join a group, return to the Portfolio Sharing tab (within the Profile tab) and begin typing the group name in the Group Membership field. As you type, we will automatically find the closest group name and auto-fill the rest for you.
If you prefer, you can limit access to your portfolio to just your favorite users in Discuss. Click the Profile tab, then Favorites to see who is on your favorites list. (To add an author as a favorite, click the Favorites dropdown under any post by that user.) In this restricted mode, other users will not be able to access your portfolio or see it in the lists of shared portfolios.
One year of portfolio history is needed to calculate a star rating and Growth of $10,000 graph, with three-plus years preferred for greater accuracy. If you don't have three years of history recorded, you can back-fill historical transactions in your portfolio using the Portfolio Manager tool. Any changes made prior to sharing will be reflected immediately upon sharing, and those changes made after sharing will be updated overnight.
Morningstar Rating™ for Portfolios
Since 1985, the Morningstar Rating™ for funds has given investors and advisors a way to evaluate the risk-adjusted return for a mutual fund compared to its peer group. Often called the "star rating," this measure is a quantitative assessment of past performance - both return and risk - as measured from one to five stars. In August 2008, Morningstar began rating individual investors' portfolios so they could compare their performance to similar open-end funds.
The Morningstar Rating for portfolios uses a similar methodology to the Morningstar Rating for funds. Portfolios are rated against a peer group of the open-end funds in the same Morningstar Category, comparing risk-adjusted returns for the three-, five-, and 10-year time periods. The overall rating is a weighted average of the available time-period ratings. Portfolios with only one or two years of history are compared against the peer group's three-year risk-adjusted returns to calculate the rating.
For portfolios with over one year of history, a Morningstar Risk-Adjusted Return and Morningstar Category are first identified. For calculating the portfolio's Morningstar Risk-Adjusted Return, we start with the total return reported by the Portfolio Manager tool on the My Performance screen. This return is then adjusted for the excess return over the risk-free rate and for risk. Morningstar's risk adjustment is based on expected utility theory. Morningstar measures the amount of variation in the portfolio's monthly returns and how investors would trade off return for less risk.
The Morningstar Category is determined based on the portfolio's current holdings, with 13 categories used for classifying portfolios: large growth, large value, large blend, mid-cap growth, mid-cap blend, mid-cap value, small growth, small blend, small value, world stock, world allocation, moderate allocation, and conservative allocation. In the final step, Morningstar assigns ratings to portfolios by comparing them to category peers, as explained below, thereby making the portfolio ratings comparable to the open-end fund ratings. While fundamental differences exist between portfolios and funds, the open-end universe is used for its large size, providing a more representative group for comparisons than other shared portfolios alone.
How Does It Work?
Morningstar rates open-end funds against their category peers using risk-adjusted returns and the bell curve distribution shown below. The breakpoints between each rating level are recorded, and then Morningstar rates portfolios by comparing their risk-adjusted returns to these breakpoints. For example, the illustration shows sample breakpoints for the large-growth category for the three-year time period. A portfolio in the large-growth category with a risk-adjusted return of 14.00% would receive a 4-star rating for that time period.
||Allows investors to compare portfolios against conventional open-end funds
||Helps investors quickly identify portfolios with superior risk-adjusted returns
||Provides an informative and meaningful peer-group comparison
If you have any comments or suggestions, we encourage you to post a message in the Morningstar.com forum. A Morningstar representative will review these posts and respond to your questions.
The Discuss area of Morningstar.com is offered for entertainment purposes only. Morningstar expressly disclaims any responsibility for the content or accuracy of any information posted to this area, and for any trading, investment, or other decisions made on the basis of this information.