Morningstar responds to adviser demands with new managed accounts

Morningstar is launching a series of managed accounts that respond to advisers' increasing requests for a sustainability solution for their clients.

Morningstar head of institutional portfolio management and solutions, Jody Fitzgerald, said that while their existing range of managed accounts take into account environmental, social and governance (ESG) factors via an integration approach, the new managed accounts - The Sustainable Managed Accounts - will screen out unfavourable investments.

"ESG is becoming an increasingly important part of what we're doing for investors. Not just within the Morningstar investment management side of business, but the entire group," Fitzgerald said

"Last year, we outright purchased Sustainalytics, for example, that's now part of Morningstar family. We've got lots of different elements within our businesses really focused on this as an area. We think increasingly that ... it's moving from the world of being niche and of interest to a few to actually being more relevant to most people."

To determine the kinds of industries to screen out in the new managed accounts, Morningstar met with a group of their top advisers late last year to discuss the issues important to their clients.

"We know that it won't suit all investors, but we believe it will suite a fairly large cohort of people who really want to exclude the really big, obvious ESG ticket items. So, the sorts of things that will be excluded from these portfolios, and therefore how they differ from our other managed accounts, is that they won't be exposed to tobacco, to oil and gas, to gaming i.e. casinos and any sort of gaming, and also alcohol," Fitzgerald said.

The existing Morningstar managed accounts tailor to a variety of risk profiles and Fitzgerald says they will first launch balanced, growth, high growth and aggressive options, as those are the risk profiles they get the most interest in.

"We have actually, at an investment policy level, approved the entire sort of cohort of risks. We're going to start with [those] and then look to see if there is a demand for the other risk profiles and launch them if we feel that we'll get the appropriate traction."