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Morningstar

Direct
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Asset Allocation
2012 Morningstar, Inc. All rights reserved. 1
Asset Allocation is a tool to model asset class behavior, optimize on various risk and return metrics to identify optimal
asset allocation policies, and forecast future performance. Morningstar Direct offers multiple models to develop and
test capital market assumptions such as Log-Normal, Johnson, and Bootstrap - in addition to the several risk and
return measures to choose from.
Outline
Workflow using Log Normal Distribution
Build a Presentation in Presentation Studio
Apply Johnson Distribution and Bootstrap Models
Compare the Model Behavior across all Models
Click Here to View Video
Workflow using Log Normal Distribution
To determine the asset mix of the optimal portfolio, we need to know the nature of the possible returns of each asset
class, along with the relationship between the different asset returns. These expectations are known as optimization
inputs. Log Normal distribution assumes that asset class assumptions are log normal.
Three parameters required:
Expected return of each asset
Standard deviation of the asset returns
Correlation between asset returns
Input methodologies offered:
Historical Data
Building Blocks
CAPM
Black-Litterman
User Defined Inputs
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We will use the Log Normal Distribution for demonstration purposes. For more information on the Log Normal and
other methodologies, please refer to the Asset Allocation methodology video and presentation in the Training folder.
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1. Click on the Asset Allocation folder located on the left pane and you will activate the inputs landing page on the
right. Here, you will find various Morningstar Input files, containing asset classes and models to start your process. As
you create your own inputs with your distribution model of choice, you can then use these input files to build your case
files for optimization and forecasting.
2. Before we begin, however, go to the Case Files tab to activate the given choices. As you go in this location for the
first time, like the Inputs Tab, only the Morningstar Files will be displayed. These sample case files will contain
specific charts and tables for you to use. In our demonstration today, we will create our own case file.
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3. Next, go to the top left and click on Classification Master to activate its window.
4. Here, you can create various asset class sets to retrieve when creating your asset class assumptions for your input
file. To create a new set, click on New Set.
Asset Class Set Up
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5. Type the name of your New Set.
6. Once complete, click OK.
Name should be
based on the first
letter of the last
name (in alphabetic
order) of all the
group members.
For example, if
group members are
V Banerjee, W
Patel, X Rao, Y
Singh, and Z
Subramanyam,
then your asset
class name should
be BPRSS_ETFs
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7. Begin to add your new asset class assumption. For example, you may want to include the US Equity Asset Class
and use the Russell 1000 as its proxy. As you add your asset classes and assign proxies to each one, the historical
date range will be provided. Once complete, click OK.
8. As you build your asset class assumptions for your New Set, you can then apply them to your new inputs file.
To assign ETF as a proxy index:
1. Choose the Universe as
Exchange Traded Funds.
2. Choose your desired ETF
based on its Ticker
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9. Let's now begin to create a new inputs file. Click on New Inputs.
10. Select your Asset Class Set.
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11. The components of the asset class set will get activated.
12. Go to the Select Model drop down where you have various models to choose from.
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13. As mentioned, for demonstration purposes, we will stay with the Log-Normal default to determine the expected
return, risk, and correlations necessary to run Optimization. Later in the session, we will cover the Johnson distribution
model and the Bootstrap Model. Proceed to click OK.
14. You will be taken to the New Options window. Go to the Inflation Series dropdown should you want to select an
asset class to represent inflation.
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15. Later, during the forecasting, you will have the option to inflation adjust the forecasting results. Should you select
an asset class here to represent inflation, it can later be used for forecasting.
16. Next, go to the Return Display Frequency. Here, you can choose the frequency in which to display the results.
Annual is the default.
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17. At any point, you can alter the default to another choice in the dropdown. To the right are Simulations and Random
Seed. Some of the optimization methods and models in the tool require running Monte Carlo Simulations. Here, you
can also change the number of simulation runs. All Monte Carlo simulations involve producing random numbers. The
randomness of the simulation should have only minor effects on the outcomes. You can leave random seed unchecked
in order to get identical results every time or you can activate it and compare different results to see how much of the
results are driven by the randomness of a Monte Carlo simulation. Proceed to click OK.
18. You will be taken to the Set Up window. For demonstration purposes, we will use default historical inputs but you
do have access to Building Blocks, CAPM, and Black-Litterman when using Log Normal distributions. Click Ok.
on Set Up.
on Baseline Settings.
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19. You will be taken to the Baseline Settings. Here, you will need to determine your client's investment time horizon
by identifying the risk free rate. For example, we will use Long-Term.
20. You can also select from the Intermediate or Short-Term choices.
After you choose
Long-Term, note
the Current Risk-
Free Rate. You will
need it later for
creating an optimal
portfolio.
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21. Notice that the choice you make will drive the Current Risk - Free Rate value but at any point, you can alter the
value by typing your own value. You can also set your Risk Free Rate as the default for future inputs. The other
components on this page pertain to Building Blocks, CAPM, or Black Litterman of which all the proxies can be altered.
Let's proceed and click OK.



Inputs Workspace

1. You will now be taken to the Inputs default page. This view is driven by your default browser and we recommend
Firefox, Google Chrome, or IE 9. Go to the workspace tabs where we've organized the workflow into three main
sections - Inputs Workspace to review/edit your inputs, Optimizer Workspace to identify target allocation, and
Forecast Workspace to forecast future performance. All results are driven by your choices from the Inputs wizard we
just completed. You can also create your own workspace as we will discuss later but for demonstration purposes, we
will look at the defaults. Lastly, at the very top, are specific settings for Inputs, Optimizer, and Forecasting where you
can alter any setting at any point and the modification will automatically get updated across your workspaces.


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2. These default windows are for reviewing your inputs. Later, we will go over how to change your input assumptions.
Going clockwise, go to your Input Summary window displaying the Annualized Expected Mean and Standard Deviation
-- as you recall, we kept the default to Annually in the Input Options window. Next, go to the right and you will find
the correlations of each asset class assumption to each other. To the top right, click on the graph.



3. Here, you can view the correlations graphically. Proceed to expand the window.



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4. View the actual numeric values within the charts. Shortly, we will discuss the overall Correlation Matrix value but in
this view, containing the scatter plot, it provides more detail as to the relationship between all the asset classes.
5. To go back to the correlation table, simply click on the table icon.
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6. Next, proceed to the Asset Class Statistics table where you will find various results such as refined arithmetic
mean, standard deviation, geometric mean, skewness, excess kurtosis, sharpe ratio, and much more including CVAR
and Downside Deviation risk measures.



7. Go to the Asset Class Distributions to understand distribution of returns. Click on Edit to activate the Settings
window.





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8. Proceed to check the box to show the histogram bars within each bar chart for each asset class.



9. You can use the scroll bar to the right to view the remaining asset classes or simply expand the window.






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10. Keep in mind, the curve represents the log normal distribution model that we developed in the inputs. Once we
optimize and do forecasting, the asset class distribution will drive the results. The histogram is the historical data for
each asset class. So this graph can be used to show how well the theoretical model, in this case log-normal, fits
historical data.



11. At any point, you can alter the default window in your display by activating the groupings at the bottom left hand
corner. As you can see for Inputs Grouping, you have the various chart and table choices, some already displayed in
your view.



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12. You can also utilize chart and tables from Optimizer or Forecasting windows to customize your workpace as we
will demonstrate later.



13. For demonstration purposes, we will go through the process to create inputs, optimize and identify target
allocations, and then forecast the future performance of those target allocations. Before we move on, let's practice
and bring in one of the input windows into our view. Select Asset Class Growth.



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14. As you can see, this view displays historical growth of the money invested in each of the asset classes.



15. At any point, as you click along the line, activate the values for each of those asset classes.







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16. Click on Settings, should you want to alter the Start Value and the Asset Classes displayed.
17. For example, change the start value from 10,000 to 100,000 and select the specific asset classes you want
displayed.
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18. The results have now been altered where the start value is 100,000 while displaying the specific global equity and
fixed asset classes that you selected. To view the numeric values for each asset class, go to the top right and click on
the table icon.



19. As shown here.



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20. As you view the results across each window, at any point you can customize your components to change your
view or results. For example, go to the top, and click on Manage Inputs to perhaps bring in multiple inputs where you
can toggle between the input files -- as we will demonstrate later in the session after we complete the Johnson and
Bootstrap inputs.



21. Go to Asset Classes, should you want to add new asset classes or delete existing asset classes. The input file you
are editing is controlled by the active input dropdown list.





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22. Go to options, should you want to alter any of the input options that we covered early in the Input Wizard.



23. Go to Estimates to activate User Defined inputs to input your own inputs in the Input Summary tab. Note that the
Estimates window is the only location to create User Defined inputs and not in the Input Wizard.





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24. Go to the Baseline settings should you want to make any alterations. Most of these settings are used for the
arithmetic mean methodologies like Black-Litterman and Building blocks. Since we are using historical, these settings
will currently have no effect. Therefore, only the Risk-Free Rate would apply for the Log Normal distribution we are
using.
25. Go to the Standard Deviation tab to view the historical standard deviations. You can change the date ranges and
the value will update.
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26. Go to the Correlations Tab to view the Correlation Matric value. As you recall earlier, we looked at the detail in the
Correlation table. Here, you will find the Correlation Matrix number to indicate if you are positive semi definite. The
higher the number, the closer the correlations may be. The general rule is the following: Any numeric value below 20
will provide stable results. If you go above 20, then your optimization results may get unstable since your asset
classes are more correlated. If you get an NA, then you would need to re-evaluate your asset classes since one or
more are highly correlated to make the Optimization results unstable to use. You can overwrite any of the values in
this table or copy and paste a table from excel if you have correlations derived outside of the software.
27. Go to the Input Summary tab where you can overwrite the numeric values for both the arithmetic mean and
standard deviation. Note that this location is where you can input your own numbers to convert the historical inputs, in
our case, to user defined. Once you've inputted your user defined values, it will automatically get updated in the
remaining tabs within the Estimates window.
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28. Next, go to the Constraints tab to apply constraints to each individual asset class or apply constraints at group
level such as all equities or apply relative constraints such as all equities will outperform all fixed income.
29. For example, let's apply individual constraints concerning the maximum holdings for each individual asset class.
Once complete, click ok.
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30. We've just completed the Inputs process. We are now ready to move onto the Optimzer Workspace. Keep in
mind, all results across all workspaces are dynamic. Proceed to the Optimizer tab.
Optimizer Workspace
1. You will be taken to its default window view. Notice on the right hand side is the efficient frontier where each point
along the frontier represents a target allocation based on your inputs. Let's proceed and identify our target allocations,
but for comparative purposes, let's first bring in current allocation of our client's portfolio. Go to the top and click on
Add Asset Mix.
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2. Proceed to type the name of the portfolio.



3. Type Current Portfolio for example. Next, go to the Weight column.




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4. Input your weights of the current portfolio. Click Ok.



5. Your current portfolio will automatically get displayed. As you can see on the left, your windows will now populate
your first asset mix which is the current portfolio. On the right, is the location of the current portfolio below the
efficient frontier.



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6. Let's continue and add our first target allocation. As stated, the current portfolio falls below the efficient frontier but
what if you were to search for an asset mix for the same amount of risk which is 9.11. For example, go to the location
of the Current Portfolio in the efficient frontier window, line it up, and click on the efficient frontier. Proceed to select
Add Asset Mix.



7. By default, the efficient frontier is made up of 100 asset mixes. The point we found that is approximately at the
same risk level as our current portfolio but on the frontier is Position 35. Let's rename this.


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8. Rename it to "same risk".



9. Next, activate the Search Frontier feature and alter the 9.64 numeric value to 9.11. At any point on the frontier, you
can click on Add Asset Mix and search for the same risk of 9.11. In our demonstration, we tried to line it up above the
current portfolio and discovered it was Position 35. To be more precise, we continued to search for 9.11. Therefore,
you can either try to line it up and still be precise by searching for the exact numeric value or you can search for the
precise numeric value from any point on the efficient frontier. Let's proceed with the search.


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10. Go to the arithmetic mean drop down.



11. Select standard deviation to represent the 9.11 standard deviation of the current portfolio.






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12. By default, as you alter the risk and return measures, the second drop down will alter as well. We will go over the
other risk and return measure choices shortly. Let's proceed and click OK.



13. You will now see your new target allocation with the same risk displayed on the efficient frontier in addition to the
supporting data on the left windows.



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14. Let's add additional target allocations. Hover over the lower end of the efficient frontier and click on Add Asset
Mix.



15. As demonstrated earlier, you will be taken to the Add Asset Mix window. In this case, we selected position 14
and we will use this position's asset mix, as is, for the conservative target allocation.



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16. Type in Conservative for the name.



16. Before we click Ok to add the Conservative Target Allocation to the efficient frontier, let's view the Risk and Return
measures. By default, the search is set to the current frontier you are showing in the efficient frontier graph.



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17. You can search other frontiers by clicking on the drop down to activate your Arithmetic Mean, Geometric Mean,
and Standard Deviation measure. If you continue to scroll down, you'll also find CVAR, downside deviation and more
but these can also interchangeable and be found in the second drop down.



18. As shown here.






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19. All these choices concerning the risk and return measures apply to the target allocations or current portfolio. You
also have access to resampling which we will discuss shortly.



20. For more detail on the return and risk measures, refer to the Asset Allocation methodology video and presentation
in the Training folder located under Home.





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21. Lets continue and proceed to click Ok.



22. Add the conservative portfolio as an additional target allocation choice.





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23. You can continue to add more target allocations such as one that maybe more moderate and another as being
aggressive. At any point, you can also customize the settings to alter the optimization results for the efficient frontier.
For example, click on the optimization command within the Optimzer tab to activate its settings.



24. Change any of the necessary settings to alter the efficient frontier but these changes will not alter the weights of
the asset mixes we have already created. As you edit or create your asset mixes, you have access to these same
settings, with the exception of the Return Display Frequency.



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25. Let's now turn our attention to resampling. Resampling produces more diversified and robust portfolios where it
recognizes that Capital Market Assumptions are forecasts and not a "sure thing". Therefore, there is no certainty to
lead to highly concentrated portfolios. If you activate resampling from here, you will resample the efficient frontier
without impacting the current and target allocations.



26. Click on Settings to view the defaults to run the resampling. Keep in mind, these same defaults are applied to the
current and target portfolios within the "add asset mix window".



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27. Now that we have established our target allocations, let's proceed to forecast the future performance. Click on the
Forecasting tab.



Forecasting Workspace

1. You will be taken to the display view.


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2. As we've seen in the previous window, the edit feature is available to customize your display settings.



3. You can also access more forecast settings from the Forecast command at the top.




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4. For example, as we maintain the default settings in the Basic Tab, we do have the ability to alter these settings.
These settings can also be altered in Presentation studio, as we will discover later, as you're creating your
presentations. For demonstration purposes, we will maintain the initial wealth default and represent it as 1 million
dollars as we're communicating the results.



5. To learn more about the forecast settings choices in the Basic tab, let's go through some of the drop-downs. For
example, click on the Back history drop down to select from the choices.



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6. Click on the Forecasting Frequency drop down to select from the choices.



7. Click on the Display Frequency drop down to select from the choices.


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8. Click on the dropdown to activate the rebalancing choices for your asset mixes.



9. Next, go to the Display tab to customize display views for percentiles, project year, target return, and target value.



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10. Proceed to go to the Cash Flow tab to add cash flows.



11. Click on Add to activate its window.


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12. The first period of the simulation is one period after the simulation initial date. So, if your simulation starts in
December 2011 and you are using an annual frequency, then the first cash flow you can enter is for December 2012.
Proceed to input a start date.



13. Continue to add the End Date.


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14. Proceed and select from the monetary amount, % of initial wealth, or % of most recent value. Let's select the last
choice, % of most recent value.



15. Proceed to input 5 which means that your portfolio requires a contribution of 5% of its current value every year
from 2016 to 2021. Proceed to provide a description such as "Cash Addition" and click OK.


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16. You will be taken back to the previous view where your cash flow is now listed. Keep in mind, your cash flow will
be driven by your forecast frequency settings under the Basic tab.



17. Next, follow the same steps but this time, select a different start and end date and input -5% as the % of most
recent value which means that your portfolio requires a distribution of 5% of its current value every year from 2018 to
2020. Type Cash Withdrawal as the description. Proceed to click OK.



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18. You will be taken back to the previous view where your cash addition and withdrawal are displayed. Click Ok and
note how the left Wealth Percentile chart will now be impacted by the cash flows.



19. Lets proceed and view the Wealth Percentile chart further. Expand this chart.


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20. As you can see in this view, each individual wealth percentile chart is displayed for the current allocation and the
proposed target portfolios.



21. Scroll down further to interpret the results using numeric values. For example, as we focus on the 5 years and the
95th percentile, the current portfolio has a 5% chance of achieving 2.17 million dollars at the end of 5 years.



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22. Whereas the target portfolio, with the same risk, has a 5% chance of achieving 2.33 million at the end of 5 years.



23. You have several forecast windows to choose from to interpret the future forecasted performance. Notice, at the
bottom, is your gallery of forecasting charts and tables choices to customize your view -- including Cash Flow
summary. Now that we have gone through charts and tables in each of the workspaces, let's now turn our attention
to creating our own workspace. Proceed to click on the Plus Sign.


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24. As you can see, this view displays my custom choices to run asset allocation modeling. Using the galleries at the
bottom of your view, you have a comprehensive list of window choices for Inputs, Optimizer, and Forecasting as you
are creating your custom workspace. As we have discovered, the default workspaces are grouped into three main
functionality groups -- inputs, optimizer, and forecasting, but you can add additional workspaces containing your
favorite windows from each gallery. To recap, the inputs gallery is the default at the bottom of your view.



25. You also have access to the Optimizer chart and table choices within its gallery.


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26. From the same drop down, you also have access to the Forecast gallery choices.



27. Before we move on to Presentation Studio to communicate the results, let's now turn our attention to Manage
Inputs.


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28. As you recalled earlier, this command gives you the opportunity to analyze multiple inputs.



29. For example, select an input file and click OK.




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30. You will now see the additional efficient frontier displayed in your view. Notice, however that it is grayed out
because it's not activated.



31. Go to the top left, click on the dropdown, and select the new inputs file.


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32. You will now see that the efficient frontier reflects the new inputs file. In this demonstration, we displayed one
inputs file but you can add much more. As you select your input files to the current efficient frontier, toggle between
them as you add the target allocations to each one. Once the target allocations have been added to the efficient
frontier, then the remaining windows will automatically populate.



33. Once you are satisfied with your file, go to the top left and click on Save to activate the Save window screen.



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34. Here, you will have an opportunity to save display settings and all components in your Optimizer, Forecast, and
Custom Workspaces as a Case file. You can also save your inputs which are considered the raw data to create your
windows for Optimization and Forecasting. Note, here we have two input files that we can save.






















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Build a Presentation in Presentation Studio

Now that we have just completed the asset allocation modeling process, using Log-Normal distribution, let's now
discuss how to present the results in Presentation Studio which is Morningstar Direct's platform for creating custom
presentations. Presentation Studio helps you better communicate your results while being able to customize the
settings and displays for each chart and table in addition to applying your own fonts, colors, and logos. For more
information on presentation studio, refer to the Training folder in Morningstar Direct. Let's begin and create an Asset
Allocation Presentation.

1. Open Presentation Studio and click on Asset Allocation.








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2. You will automatically be taken to the Create New Report window. Keep in mind, you need to create your asset
allocation case files and asset mixes ahead time and then retrieve them in this location. Let's continue and click on
New Report.



3. You will be taken to the Find Asset Mixes window.


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4. Go to the drop-down. Locate your case file.



5. It will automatically display the components as shown here - where we have the current portfolio and its four
target allocations. Proceed to click OK.



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6. You will be taken to the Asset Mix setting window to modify color and marker choices.



7. For example, click on the color drop down and select Custom.




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8. In addition to the standard color choices, you have access to the custom colors driven by specific RGB numeric
values.



9. Once youre complete with the color and marker choices, you will be taken to a blank screen. Notice at the bottom
left that the Asset Allocation grouping is automatically activated to display the various chart and table choices.


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10. For example, as you hover over each chart and table choices, you'll find many to choose from -- all pertaining to
asset allocation modeling.



11. Let's begin and build our presentation with these charts and table choices. Go to the Divide Page command at the
top.


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12. Click on one of the cells as to how you want to divide the page.



13. As shown here.



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14. Begin clicking and dragging a chart or table to one of the cells. For example, select the Efficient Frontier chart.



15. Notice how the chart will automatically display the components from your case file. Continue to build your
presentation. The next few slides are examples as to what chart and table components you can use to build your
presentation.


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16. For example, here is a sample page combining the Efficient Frontier with composition and correlation.



17. Proceed to click on the Efficient Frontier Chart to activate the chart settings at the bottom of your page. As you
click the chart or table settings, the appropriate settings will get activated.


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18. For example you can modify the Chart settings.



19. You can also modify the Optimization settings. Note, that you have access to the same settings in Presentation
Studio as those listed in the Asset Allocation tool that we covered earlier. Let's continue and view the other potential
pages that you can create.


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20. Charts pertaining to traditional and resampling optimization.



22. Charts pertaining to Asset Mix and Asset Class Distribution.




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23. Charts and tables pertaining to Wealth and Return Percentiles.



24. Charts and tables pertaining to Returns and Target Wealth and Return.


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25. In addition to the Asset Allocation chart and table choices, you can also bring additional components from the
Multiple Investments grouping to present your results further for the Asset Class Assumptions and Asset Mixes.
These components are all based on the historical data of your Asset Class Proxies.



26. At any point, you can modify your chart or table choices from the bottom view or from the top view. For example,
go to chart menu at the top and activate the Asset Allocation choices.



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27. Go to the Table menu and activate the table choices. To add to your page, the logic is the same as those blue and
orange icons located in the bottom of your view where you click and drag the component to the specific cell. For more
information on Presentation Studio, refer to the resources in the Training folder under Home.














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Apply Johnson Distribution and Bootstrap Models

We've just completed going through the Asset Allocation workflow using Log-Normal distribution and creating the
presentation in Presentation Studio. Let's now turn our attention to additional model choices such as Johnson and
Bootstrap. Lets first discuss Johnson.

Johnson Distribution Model

Johnson is a fat-tailed distribution where you can specify if losses are more likely to happen in the future than gains or
visa versa. By using skewness and kurtosis, Johnson allows you to fit the shape of the distribution of what actually
happened. For more information on the Johnson Distribution model, refer to the Asset Allocation Methodology video
and presentation in the Training folder under Home.

Four parameters required:
Expected Return
Standard Deviation
Skewness
Kurtosis

1. Click on New Inputs.


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2. You will be taken to the New Input window.



3. Proceed to the Model drop down and select Johnson.



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4. Continue to activate the "Use an Existing Input" choice and select a Log Normal input file or press "select asset
classes" and build a set of asset classes from scratch or from one of your existing asset class sets.



5. Next, you will be taken to a new window. Here, you can modify the default input option choices. Once complete,
click OK.



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6. Your Inputs landing page will appear. Proceed to click on Estimates to be taken to the Set-Up window.



7. Here you can select from the various input methodologies. We will maintain the default.


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8. Proceed to go to Skewness where you can take advantage of this additional behavior to model the asset classes.
Skewness describes the shape of the return distribution and accounts for a higher and negative density of positive and
negative returns. By default, these numbers are set to default on historical values of the time periods shown here. You
can override these numbers to refine your views. As you recall, Log-Normal requires 2 parameters and correlation to
model asset class behavior whereas Johnson has two additional parameters -- Skewness and Kurtosis. Therefore, you
can take advantage of these additional parameters to model asset class behavior.



9. Go to Kurtosis to view the results. Higher Kurtosis values lead to more of the probability of being in the tails of the
distribution and around the mean or the peak of the distribution height.


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10. Proceed to the Input Summary tab and input your own views for Skewness and Kurtosis as shown here. Once
complete, your new numeric values will automatically get reflected in the Skewness and Kurtosis tabs to the left.
Once complete, click ok.



11. You will be taken to the default inputs view to view your results as shown here.


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12. As we've already done, you can save this Inputs file. Although we didn't repeat the Optimization or Forecasting
steps as in the Log Normal demonstration, you can choose to save your case file at any point and build your
workspaces. For demonstration purposes, we will create the inputs using Johnson Distribution and Bootstrap. Then
compare these models with the Log Normal model in Presentation Studio to view the Optimization and Forecasting
results.



Bootstrap

Let's continue and now discuss the Bootstrap Model. Bootstrap is a scenario-based simulation where you can apply
weights to specific historical periods in the past to generate the future expectations. Therefore, if you feel, for
example, that the recent extreme events pertaining to the Tech Bubble or Mortgage Crisis will occur again in the
future, you can assign weights to the distribution when generating the future expectations.

No parameters are required since you cannot model for the future what has not happened in history.

For more information on the Bootstrap Model, refer to the Asset Allocation Methodology video and presentation in the
Training folder under Home.


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1. Click on New Inputs.



2. You will be taken to the New Inputs window. Select an Asset Class Set and proceed to go to the Model drop-down.


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3. Select the Bootstrap model.



4. Although not required, you can change the name of the Asset Class Set to another name -- such as Sample
Bootstrap -- should you want to use the input file for another case. Click Ok, once complete.



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5. Make the necessary changes to the default view and proceed to click on Set Up.



6. Here, you will be given an opportunity to identify specific periods. Therefore, instead of developing expected return
and standard deviation for asset classes, here we are optimizing historical data directly and identifying specific periods
and applying specific weights where these scenarios will likely repeat in the future. If a time period is not included, it
has no influence on the results. Lets proceed and click on Add.


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7. Create two time periods. For example, the example in this view identifies the tech bubble from 2000 to 2002 and
the mortgage crisis from 2007 to 2009. These are two extreme events that occurred within the financial industry
where, for this demonstration, we feel these events will happen again in the future. Of the two events, the likelihood
of the tech bubble will happen more so than the mortgage crisis, hypothetically -- hence, we gave an overweight of
65% for mortgage crisis to occur again and an underweight of 35% for the tech bubble to reoccur. Let's proceed and
click OK.



8. Your input file with the default windows will get updated. Here, you can view your results for the default views and
continue to build your workspace and forecast windows. As mentioned earlier as we were discussing Johnson
distribution, we will view the Optimization and Forecast results in Presentation Studio. Keep in mind, you can alter
settings in any of the workspaces but you can also alter settings for your case files in Presentation Studio -- as we will
demonstrate shortly.



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Compare the Model Behavior across all Models

1. Lets now create a case file and compare the Log-Normal, Johnson, and Bootstrap models. Open the log-normal
case file that we created earlier.



2. You will be taken to the Inputs landing page. Proceed to click on Manage Inputs.


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3. Select the Bookstrap and Johnson input files that we just finished creating.



4. Go to the top left and activate the drop down.


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5. The BootStrap and Johnson models are now listed. To communicate the results in presentation studio, go through
the steps that we covered earlier to generate a presentation in Presentation Studio showing all three models. For
training on Presentation Studio, refer to the resources in the Training folder under Home. The following slides are
examples as to what you can create in Presentation Studio, comparing all the models to present your results.



6. Comparison of the Efficient Frontier and the Asset Mix Statistics results.


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7. Comparison of the Compositions and Asset Mix Distributions results.



8. Comparison of the Allocation Spectrums.



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9. Comparison of the Weath Percentiles charts and tables.



10. Comparison of the Return Percentile Charts and Tables.



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11. Comparison of the Return Histograms results.

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