Morningstar Introduces Strategic Beta Classification System

The company also published “A Global Guide to Strategic Beta Exchange-Traded Products,” its first global landscape report about strategic beta ETPs.

Morningstar defines strategic beta as a class of investment products that track indexes that seek to either improve performance or alter the level of risk relative to a standard benchmark, representing a fast-growing middle ground of the active-to-passive spectrum. Morningstar Direct, Morningstar Office, and Morningstar Advisor Workstation, the company’s investment platforms for institutional investors and advisers, now include the new classification system and related data points. Clients of Morningstar Data will be able to license the data points later this month.

Ben Johnson, Morningstar’s director of manager research for passive strategies, says: “The need to define, measure and scrutinize the strategic beta space has increased as investors have flocked to these products, and they’ve grown more complex. Investors need to undertake the same degree of due diligence when evaluating strategic beta products as they would for active investment managers. We’ve created a strategic beta classification system to help investors identify the strategies that straddle the active/passive divide.”

Clients can identify, screen and search for ETPs at three strategy attribute levels. The system first identifies strategic beta products as the investment style, then by the strategic objective of the underlying benchmark, and then the strategic objective at a more granular level. 

“Our new system for classifying strategic beta investment products will help investors understand their options and make more informed investing decisions. Because strategic beta products exhibit a variety of investment styles, the Morningstar classification system can help investors compare similar strategies and evaluate investments within the context of their traditional Morningstar category,” Johnson said. 

Morningstar’s report examines trends in asset growth, asset flows, product development and fees by region; assesses the origins of strategic beta and the various types of risk that these strategies look to control; and provides a practical guide to analyzing strategic beta ETPs. You can access Morningstar’s global landscape report about strategic beta here.