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Morningstar Investment Services
Mutual Fund
Portfolios
Absolute Return
Invested across global markets and sectors, the Absolute
Return model portfolio emphasises a diverse range
of alternative investments in pursuit of steady returns and
low volatility.
Designed to adapt to shifts in the market
The Absolute Return portfolio uses a broad range of alternative investments
to help deliver moderate, consistent returns whether the stock market is moving
up or down.
How Absolute Return Works
The Absolute Return portfolio is designed to adapt
to all kinds of market environments, keeping a lid on
volatility and offering a level of downside protection.
Over a full market cycle, it seeks the moderate
returns of a 30% stock/70% bond portfolio—while
investing in alternatives to help minimize the
toll that inflation and rising interest rates can take
on returns.
A “go anywhere” portfolio, Absolute Return allows
fund managers to take advantage of market
opportunities to help compound returns over time.
The Power of Alternatives
‘Alternative’, or non-traditional, investments aren’t
only for the most sophisticated investors anymore. In fact,
we think they’re now an essential part of a modern
portfolio. Because they don’t typically move in lockstep
with other parts of a traditional portfolio, alternatives
offer the potential to boost overall portfolio returns
while reducing risk.
The Absolute Return portfolio combines traditional
and alternative mutual funds with low correlations to
each other and to the broad markets, offering
highly diversified exposure across geographies, sectors,
and time horizons.
Goals of Absolute Return: Diversify, Protect, Grow
The strategy is designed to capture opportunities in strong market environments—and provide downside protection in weaker ones.
Diversify
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Incorporate alternatives that may have lower
correlation to broader market cycles
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Invest in a wide range of global securities
and sectors
Protect
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Buffer against sharp volatility and drawdowns
3
Help portfolios weather sudden bear markets
Grow
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Pursue timely opportunities free from traditional
benchmark constraints
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Risk-aware managers use distinctive strategies
to help add value
Research You Can Trust
Only the investments we have the most confidence
in make it into the Absolute Return portfolio. Starting
with unbiased Morningstar, Inc. data, we use a
proprietary evaluation system to identify managers who
employ a prudent, repeatable investment process that
has yielded strong results over time.
Inside the Absolute Return Portfolio
To help meet targeted risk and return objectives and maintain a low correlation to
traditional stock and bond markets, the strategy uses funds that tend to fall into one of
three categories:
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Opportunistic Funds
The managers of these funds invest across multiple asset classes. Each manager
may employ a range of techniques as they seek to generate targeted levels of absolute,
not relative, return.
3
Non-traditional Diversifiers
These strategies focus on minimizing
correlations to broad asset classes—
particularly global stocks and bonds. To
select them, we look carefully at
funds’ historical correlations to the broad
markets—and to each other.
Face-to-Face Investing
When we research a fund, we want to understand
the firm and the people behind it. We meet one-on-one
with fund managers to uncover how they make decisions.
We look for those who ‘eat their own cooking’ by
investing their own personal savings in the funds they
oversee. Then, we assemble the investments into
a portfolio—and manage it actively to ensure that it’s
positioned to help meet the goals we’ve set for it.
Who is Absolute Return for?
Absolute return is well-suited to play a role in many
types of investors’ portfolios. For example, it may be used
as a core holding, creating a low-volatility anchor for
a portfolio with the potential for standalone downside
protection. For others, it can be can be used as a
satellite holding to help enhance overall diversification.
It may also appeal to conservative investors, including those who are just entering the market. Finally, it can
help investors in retirement—who have less tolerance
for volatility or capital losses—make regular distributions
less disruptive.
To select a portfolio, talk to your financial advisor,
who can help you build a wealth strategy focused on
your long-term goals.
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Stabilizers
Funds in this category tend to act as
“shock absorbers”. They are designed to
minimize volatility and drawdowns
relative to the U.S. fixed income or U.S.
equity markets.
Neither diversification nor asset allocation ensure a profit or guarantee against a loss. This portfolio may not be suitable for all investors. In particular, it is not appropriate for short-term
investments, and you could lose money by investing in it.
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About Morningstar Investment Services
We’re committed to helping financial advisors create better outcomes
for investors like you.
Together, we offer the professional guidance and access to strategies
that can help you achieve your goals. Our model portfolios are
designed to be part of a long-term investing plan that helps meet
your needs at each stage of your lifetime.
Important Information
It is important to note that investments in
securities (e.g., mutual funds, exchange-traded
funds, common stocks) involve risk and will
not always be profitable.
Neither diversification nor asset allocation ensure
a profit or guarantee against a loss.
Morningstar Investment Services does not guarantee that the results of its advice, recommendations,
or the objectives of your portfolio will be achieved.
Morningstar Investment Services does not guarantee
that negative returns can or will be avoided in
any of its portfolios. An investment made in a security may differ substantially from its historical
performance and as a result, you may incur a loss.
Past performance is no guarantee of future results.
The Program includes various strategies available
to individuals and institutions primarily through
arrangements Morningstar Investment Services has
with various unaffiliated registered investment
advisors. Within the Program, Morningstar Investment Services or its investment advisory affiliate
provides discretionary investment advisory services.
In addition to the Program, Morningstar Investment
Services also offers model portfolios to third-party
advisory programs (“Advisory Program”) of financial
institutions on a non-discretionary basis as a strategist. Under a strategist arrangement, the Advisory
Program has full discretion to invest the Advisory
Program client accounts in accordance with
the model or deviate from the model provided by
Morningstar Investment Services.
©2015 Morningstar Investment Services, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. All other marks are the property of the respective owners.
Morningstar Investment Services, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. Please note that portfolio availability may vary by business relationship. Contact your financial
advisor for details. TAMP-202-010915