Morningstar Advisor

Portfolio Implementation
The goal of this attribute is to set advisors' expectations around the potential degree of change inside a specific strategy. The ETF structure gives managers the ability to quickly and cost effectively change the profile of a portfolio, often in a dramatic fashion.

Selection decisions for this attribute are based upon a review of the degree of changes both within and among asset classes in a portfolio. As a result, changes to the cash/equity/fixed income/other allocation, as well as to a portfolio's U.S. /non-U.S. exposure, are considered.

Portfolio Implementation: Hybrid
This attribute characterizes portfolios that use a combination of tactical and strategic elements in asset allocation. Hybrid portfolios, for example, start with a stated investment policy benchmark or asset allocation but allow for significant deviations of exposure within and between allocations, similar to "core and satellite" or "hub and spoke" operating models. Portfolio strategies that make significant use of options also receive this classification.

Portfolio Implementation: Strategic
Those strategies maintain a stable allocation across asset classes and underlying exposures. They may deviate in the short term, but to a smaller degree compared with tactical strategies. Strategies for which few historic portfolios have been provided to our database initially default to this classification.

Portfolio Implementation: Tactical
Tactical strategies engage in potentially large changes in the asset mix of a portfolio to capitalize on identified investment opportunities. These changes can be reversed or removed as market conditions change.

Primary ETF Exposure Type
The fourth attribute identifies the type of ETF typically used to gain exposure to the Universe and Asset Breadth attributes. This information gives the advisor insight regarding the scope of potential holdings in a client portfolio and how the portfolio manager gains access to underlying securities in the market.

Classification is based upon analysis of past portfolios and information regarding a strategy's starting universe or list of potential investments.

Primary ETF Exposure Type: Broad Market
If the manager typically uses broad-based ETFs tracking diversified indexes, such as the S&P 500, Barclays Aggregate Bond, or the MSCI EAFE, this designation is assigned.

Primary ETF Exposure Type: Sector
Strategies that primarily use equity sector ETFs, such as financials or energy, receive this designation. For fixed-income strategies, the portfolio will focus on and potentially hold more narrowly focused ETFs to gain exposure within the Asset Breadth attribute. A sector fixed-income strategy is typically one focused on a single sector such as municipals or Treasury ETFs.

Primary ETF Exposure Type: Country/Region
Similar to the sector option, these strategies use single-country, regional, or currency ETFs focused on a geographical area and are typically found in the International or Global Universe attribute.

Primary ETF Exposure Type: All-Inclusive
Any ETF that could fall under the Universe and Asset Breadth attribute for a given strategy could be included. For example, if a strategy was "U.S." Universe, "Equity" Asset Breadth, and "All-Inclusive" Exposure Type, then any U.S. equity ETF (sector, sub-sector, broad market) could be a potential investment.

This attribute classification system gives advisors a new tool for conducting research on these strategies and helps them set better expectations for potential exposures across the ETF universe. The system also provides a framework to discuss and analyze developments in the ETF managed portfolios universe.