Morningstar Investment Conference: Keynote With Kunal Kapoor

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Kunal: Hey, Rob, what's up?

Rob: Hey, Kunal. I just wanted to call and wish you good luck on your big speech in 10 minutes. Don't be late, dude.

Kunal: OK, sounds good. Thanks a bunch. Bye.

I never wear a tie.

MIC Rapid Response Team: MIC Rapid Response Team. What's your situation?

Kunal: Initiate protocol IRL.

MIC Rapid Response Team: Protocol IRL initiated. Your car will be out front in two minutes. You have 10 minutes until your drop.

You have five minutes.

You have three minutes.

You have two minutes.

The package has been delivered.

Kunal: MIC this year is going to be a blast.

MIC Rapid Response Team: Are you there? It's go time.

Kunal: I'm here. I'm sorry. I just want to say one cool line.

Good morning, everybody. And welcome to our bubble here in Chicago. I'm coming to you live from the LSAV Studios on the west side of Chicago. And no, you can be assured my pandemic hobby hasn't been to learn skydiving. Maybe it wouldn't have been a bad idea, but I have not taken it up.

Like many of you, though, it's been quite the journey. This is week 26 for all of us in Morningstar's U.S. offices in terms of working remotely, and, like you, we're making the best of it, rallying as an organization, spending time with family, and making sure we're reaching out to friends and all those who we have great relationships with. Normally, of course, we'd be here in Chicago, but this year things are very, very different. But wherever you are, we hope you and your family are healthy and safe.

Now this conference is going to look a little bit different, of course. I start each year by looking out at the cavernous room in McCormick Place and thanking the many of you who've been attending our conference for many years. This year I can't see you, I can't feed off your energy, and I've even been told to stand still in one spot, which is hard for me to do. But I want to thank and acknowledge your continued presence and participation. Many of you have been coming to our conference for decades, and we're excited that you're joining us in this new digital format as well. Just so you know, we have about 2,500 U.S. attendees registered. And because this is the first year of us trying a global MIC digital event, we have more than 5,000 people around the world registered for the digital version, which will run through Dec. 1. So, while we have a lot of programming today and tomorrow, be sure to check back for much of the programming that we'll offer later in the year as well.

I also want to welcome all the financial professionals and investors from all over the world who are joining us for the first time. I think that is definitely an advantage of doing this digitally. So whether you're calling in or Zooming in or joining us from Australia, New Zealand, India, Canada, Brazil, Singapore, South Africa, thanks for making the time to spend a couple of days with us, and we hope you're going to enjoy this as much as we're going to enjoy putting it up for you.

Now, Morningstar's mission, I like to remind everyone, is to empower investor success. And we have leaned into it during this unprecedented time. At a time of massive uncertainty in the world around us, we have leaned into providing investors with the financial tools they need to securely navigate this uncertain environment. After all, it was just March when the world seemed like it was falling apart. And we partnered with you, the advice givers, to help investors navigate around their behavioral biases and avoid making moves counter to their long-term plans.

The challenges in this context, they're far from over. But we are doubling down on partnering with you to help clients keep a focus on their goals and the outcomes that they desire through tools such as a continuously evolving Gold Bridge financial planning software. And we hear you about the importance of continuing to drive our technology investments, to remove any friction from client interactions in a world that's gone digital at a speed that I think we all would've agreed seemed unimaginable but a few months ago. I hope, in fact, you've been trying our new smartphone companion app for Advisor Workstation, which comes with an intelligent digital assistant. And what I love about it is: The digital assistant, once you've taken a smartphone camera and taken a picture of a brokerage custodial statement, it automatically transforms that into a formatted portfolio that you can sit down for analysis and review remotely with your client or in person.

Empowerment, technology, planning, investing, coaching: The list of your responsibilities grows even greater at this time. So keep an eye out for three themes in particular at MIC Digital where we'll join hands with you in our shared mission of empowering investor success and empowering your success through these challenging times. The three that I'll be looking out for are the empowerment of the modern investor, the role we play in lifting up the communities that we're a part of, and the first one I'm going to talk about, which is the state of investing.

So let's start with the state of investing and consider what's happened so far in 2020. Markets around the world crumbled in March only to rebound strongly and, in many instances, even do better than anyone would have imagined. Perhaps today's companies and economies are more resilient and flexible. Maybe it's that central bankers have magic wands like never before. But the whipsawing effect of what we've lived through has been startling. The net result is that after falling sharply, the Morningstar US Market index is in positive territory for the year and the Morningstar US Large Growth index is up more than 25% year to date.

It's a similar story when you look at other asset classes, with global markets rallying hard, fixed-income asset classes doing well, and even categories such as high yield, which started the year very, very poorly with the onset of the pandemic, coming back strongly. Perhaps value investors are less thrilled, but even they will acknowledge that, on balance, the rally amidst the pandemic has been strong by any measure.

But more than ever, the questions it leaves us feeling and facing are as intense as ever. Can markets and the real economies that we live in diverge as much as they have without major fallout? How do retirees dependent on income structure a portfolio at a time of unprecedented low yields? Are the crush of individuals who are opening no-fee accounts destined to make the same mistakes as they hurriedly pile into technology stocks because the latest acronym, TINA, or "there is no alternative," permeates the thinking of many who are opening accounts? Will inflation return? Will taxes rise? All seem possible, all seem plausible, but we won't know the answer to many of these questions anytime soon. And yet we have to navigate the issues that surround them.

At the 2019 conference, I highlighted our new risk model, and we have continued to hone it through enhanced scenario-planning capabilities that allow you to sit down with clients and perform a "What if?" analysis. In fact, if you think back to last year, I talked about a U.S./China trade war scenario, and I also talked about a robot apocalypse. The latter seemed like a really, really brave assumption on my part, but perhaps not so anymore given all that has since transpired. The bottom line, though, is our risk model allows users of Morningstar Direct and Morningstar Office the capability to scenario-play with clients and imagine even unthinkable outcomes. These are then used as valuable inputs in financial planning, which we're investing in through our fast-evolving and beautiful Gold Bridge software. Earlier this year, we purchased FinaMetrica, whose risk-tolerance questionnaire we are integrating into Gold Bridge for release in the fourth quarter. Coming with it in Morningstar Office is a salesforce and e-money integration, so you can run your business digitally and as seamlessly as you'd like.

We've also heard from many of you that you're frustrated that you can't use benchmarks to tell the story of how you're effectively building client portfolios. Our new target allocation index family changes all that, providing a clear and definitive measuring stick for multi-asset strategies, including those that you're building uniquely for your clients. And finally, at the security level, we've launched factor exposure for the equity allocation of funds and a tool to understand risk exposure for fixed-income allocation. These features--factor profile and fixed-income exposure analysis--are available in our advisor-focused software to help you with building client portfolios.

So there's no doubt that the investing environment is challenging and complex, but we're arming you with the tools so that you can successfully build outcome-based portfolios from the ground up. All these tools are serving to empower the modern investor and accelerate the trend toward personalization--the second key thing I'd ask you to look out for at this conference.

For us at Morningstar, more than anything, this trend is brought to life through the lens and enormous potential of ESG factors or environmental, social, and governance inputs into portfolio building. ESG is evolving into sophisticated tools that allows for personalization and, as markets have recently demonstrated, with superior return outcomes possible. In the middle of a pandemic, we completed our acquisition of Sustainalytics, the leading provider of ESG data and analytics globally. And we are embedding Sustainalytics capabilities across Morningstar. Michael Jancey, who founded and led Sustainalytics for more than 25 years, back when ESG was not anywhere near as prominent as it is today, is leading an effort across Morningstar to ensure that advisors are equipped with the tool to make ESG personal. We think this is important because, as we highlighted last year, two of the biggest challenges facing advisors--showing your value and build long-term relationships--can be met by embracing ESG. Research shows that advisors often lose relationships when there's a generational change in the leadership of families. Often that's because the values that apply between one generation are not captured effectively in the manner that portfolios are built. You can change that, and we're going to help you do so.

With Sustainalytics, we've already launched fund's carbon exposure, dozens of data points to assess a company's footprint, including carbon impact. And importantly, we're aggregating ESG portfolios that are stored throughout our software and providing portfolio-level statistics on them when it comes to ESG. We think these are game changers in the ability that you have to build effective, resonant, and personalized portfolios that show where you can bring value and insights to relationships while delivering the outcomes that clients want. Importantly for you, it ensures that, as intergenerational wealth transfers happen, you are relevant to that conversation. Next week, also look out for our new ESG risk model in Morningstar Direct, which will help advisors visualize how risk and return trade-offs can be balanced when constructing client portfolios in an ESG framework. And we're adding ESG screens to our core equity and fixed-income indexes to help you better benchmark those portfolios. Finally, as a user of our research, you'll have access to our select list for advisors through our manager selection services. These include high-conviction investment ideas, as well as ongoing training, commentary, and support for those of you who are trying to navigate the ESG landscape.

We're going all in on ESG at Morningstar, and it is to empower investors and personalize their experience. And together with you, we can open up the investing world to a new generation of investors who are poised to be the beneficiaries of an unprecedented wealth transfer but who bring very different values and an entirely different ethos of responsibility to how that wealth is invested. For you to engage with them, you, too, will need to be all in on ESG.

Personalization, ESG, the pandemic, uncertainty, hope, societal unrest: You name it; we're living through it. These are gnarly intertwined issues that leave us all wondering how we can do more to help. And on that matter, this conference is going to encourage and get us thinking about how we can create financially better outcomes for more of society. Because when that happens, we all benefit.

As the pillars of communities that you are part of, you have an important role to keep playing in this context. When I return to the stage tomorrow, I'll speak more fully about the opportunity we have to jointly partner on this measure. But it's important that today I acknowledge that the issues around wealth and racial inequity that are roiling the world around us do have more solutions that we can jointly bring to bear. And the role that we have in helping people save, invest, and plan can be magnified and broadened in a positive and impactful way like never before. Morningstar's playing a role in this transformation, both internally and externally. Externally, we're partnering with firms such as Impact Shares, a 501(c)(3) nonprofit organization that donates all its advisory profits back to the community to bring ETFs that track the Morningstar Women's Empowerment Index and the Morningstar Minority Empowerment Index to life. The underlying indexes highlight companies that have strong track records on gender, racial, and ethnic diversity.

And we want to partner with you in supporting efforts to bring lasting change to the communities that you are a part of. Because more than others, you understand local dynamics and can be vessels of lasting change. So, pick up the phone and call us, email us, and engage with us, so we can support your efforts to ensure that we're serving a more diverse, inclusive group of investors and empowering their success in ways that drive lasting structural changes to the inequity that we're grappling with today. These are weighty topics, but our conference is up for tackling them. And together with you, we can certainly make a difference. The world around us has changed, but our shared mission of empowering investor success is as relevant and resonant as ever. Thank you. And let's indeed make sure that the conference is a blast.