Products September 18, 2014

Morningstar Introduces Strategic Beta Classification System

Morningstar Inc. introduced the industry's first strategic beta exchange-traded product (ETP) classification system, to help investors better identify, compare and analyze strategic beta investment products.
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The company also published “A Global Guide to Strategic Beta Exchange-Traded Products,” its first global landscape report about strategic beta ETPs.

Morningstar defines strategic beta as a class of investment products that track indexes that seek to either improve performance or alter the level of risk relative to a standard benchmark, representing a fast-growing middle ground of the active-to-passive spectrum. Morningstar Direct, Morningstar Office, and Morningstar Advisor Workstation, the company’s investment platforms for institutional investors and advisers, now include the new classification system and related data points. Clients of Morningstar Data will be able to license the data points later this month.

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Ben Johnson, Morningstar’s director of manager research for passive strategies, says: “The need to define, measure and scrutinize the strategic beta space has increased as investors have flocked to these products, and they’ve grown more complex. Investors need to undertake the same degree of due diligence when evaluating strategic beta products as they would for active investment managers. We’ve created a strategic beta classification system to help investors identify the strategies that straddle the active/passive divide.”

Clients can identify, screen and search for ETPs at three strategy attribute levels. The system first identifies strategic beta products as the investment style, then by the strategic objective of the underlying benchmark, and then the strategic objective at a more granular level. 

“Our new system for classifying strategic beta investment products will help investors understand their options and make more informed investing decisions. Because strategic beta products exhibit a variety of investment styles, the Morningstar classification system can help investors compare similar strategies and evaluate investments within the context of their traditional Morningstar category,” Johnson said. 

Morningstar’s report examines trends in asset growth, asset flows, product development and fees by region; assesses the origins of strategic beta and the various types of risk that these strategies look to control; and provides a practical guide to analyzing strategic beta ETPs. You can access Morningstar’s global landscape report about strategic beta here.

Data & Research September 18, 2014

Health Comes Second for Baby Boomers

A new report from the Employee Benefit Research Institute (EBRI) asks whether household expenditures commonly change with age for older Americans.
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EBRI tracked data through 2011 for its analysis and found that housing-related costs topped the list as the largest spending category for Americans between 50 and 64 years old. Maintaining their home is the biggest expense for these Americans, and consistently takes up 40% to 45% of their household budget as they age, even as the actual dollar amount spent on their home decreases over time.

The dollar amount of health-related expenses, on the other hand, increases steadily with age. EBRI found that, in 2011, households with at least one member between 50 and 64 years of age spent 8% of their total budget on health items. That number more than doubled to 19% for those ages 85 and older. The median health care expenditure for households with at least one member 85 and older was $2,814 in 2011, but the mean was more than double that, at $6,603.

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In fact, EBRI found spending increases significantly at the 95th percentile for those age 90 or older, which may be attributed to the high cost of late-in-life health care. “For some, health care expenses can be heavily skewed towards the end of life,” says Sudipto Banerjee, EBRI research associate, who authored the report.

Food and clothing costs remained mostly flat across age groups as a percentage of total household expenses. And somewhat predictably, transportation and entertainment expenses decreased over time as people did not commute or go out as often as they got older.

Still, average household spending decreased between 2005 and 2011 in every age group, even more so among comparatively younger households. “Whether this was a short-run drop in response to the 2008 market crash or part of a long-run trend remains to be seen,” says Banerjee.

The full report, which used data from the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS), is published in the September EBRI Notes at www.ebri.org. 

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