Reading the X-Ray (Tool)
Getting under the hood of your portfolio is an invaluable way of identifying potential trouble spots.
Question: I use Morningstar's Portfolio X-Ray tool to analyze my holdings but don't understand all of the data points I find there. Can you provide an overview?
Answer: The Morningstar Portfolio X-Ray tool is a great way to analyze a group of holdings. Looking at data for a stock, mutual fund, or ETF can tell you about its composition and performance individually, but the X-Ray tool aggregates this data for all the holdings in a portfolio to give you a picture of the portfolio's overall characteristics, helping you identify potential trouble spots. The tool is designed for Morningstar.com Premium Members who track their portfolios using the Portfolio Manager tool, but non-Premium Members can do a similar analysis by entering their holdings into the Instant X-Ray tool.
To better understand the data shown in the Portfolio X-Ray tool, let's take a closer look at each section shown on the X-Ray Overview page, moving from top to bottom (Premium Members also can click on the X-Ray Details, X-Ray Interpreter, and Stock Intersection links at the top of the page for additional information). For each of the following sections, click on the Holdings Detail link near the section header for a more detailed breakdown.
Asset Allocation: A breakdown of the portfolio's holdings by asset class, broken into long, short, and net positions. (Long positions are those held in the hope that a security increases in value, short positions are held in the hope that a security loses value, and the net is the difference between the two.)
Stock Style Diversification: For stocks (the Valuation graphic),a percentage breakdown of the portfolio's equity holdings based on the Morningstar Style Box. Holdings (or, in the case of funds, underlying holdings) are divided by market cap (large, medium, and small) and style category (value, core, and growth). To the right is a style-box breakdown of bond-fund holdings by interest-rate sensitivity and credit quality. (Note that not all holdings are classified, so total percentage may not add up to 100%. Also, for the bond-fund style-box breakdown, holdings are assigned based on each fund's style-box assignment rather than by slotting each of the fund's underlying holdings in the appropriate square of the style box. The net effect is that an investor's bond holdings may appear less diversified across the style box than they actually are.)
Stock Sector: A percentage breakdown of the portfolio's stock holdings by sector and supersector. You'll also find a breakdown for the S&P 500 so you can see how the portfolio's composition compares to that benchmark.
Stock Type: A percentage breakdown of the portfolio's stock holdings by assorted characteristics, such as whether they are slow-, medium-, or fast-growing companies, whether they are cyclical (sensitive to changes in the economy), and more.
Fees & Expenses: An asset-weighted average expense ratio for the portfolio along with what you might expect to pay for a similarly weighted portfolio invested in funds that charge their category averages in terms of fees. You'll also find an estimate in dollars and cents of how much you are paying in annual mutual fund expenses and sales charges (loads).
World Regions: A percentage breakdown of the portfolio's stock holdings by geographic region.
Stock Stats: A variety of statistics about the portfolio's stock holdings, including those held by funds in the portfolio. Each includes a comparison to the S&P 500 expressed as a percentage of the latter. For example, if the portfolio's price/prospective earnings ratio is 80% of the index's, it is expressed as 0.80; but if it's 120% of the index's, it is expressed as 1.20. Statistics are averages for all of the stock holdings in the portfolio. Here's a description of each of these stock statistics:
Top 10 Holdings: A list of the portfolio's 10 largest holdings as a percentage of portfolio assets, with the current price per share, total market value of the position, and year-to-date total return for the security.
Using the Data
Looking over these X-Ray statistics is an excellent way to get to know your portfolio better. Reviewing a list of your individual holdings is fine, but it can't give you a holistic view of what you own the way the X-Ray tool does. Most of all, X-Raying your portfolio can help alert you to potential trouble spots, such as an over-allocation to one part of the style box, to a particular stock sector, or to a region of the world. It also helps you figure out just how much you are paying, in terms of dollars and cents, to have your money managed rather than just showing you the expense ratio for each of your holdings. And that's valuable information you can take to the bank.