Clients Calling You About Risk? Look no Further Than Morningstar Direct Lens

How
Investment
Teams
Use
Stress-Testing

Portfolio
stress-testing
models
hypothetical
market
conditions
so
investment
analysts
can
understand
how
their
portfolio
might
act
under
pressure.
It
applies
historical
data
to
current
markets
so
you
can
make
forward-looking
decisions
about
risk
management.

With
portfolio
stress
testing,
you
can:

1)
Gauge
portfolio
exposure
to
risk
factors. Understand
what
risk
exposure
looks
like
at
an
aggregate
level
and
what
holdings
contribute
to
that
risk. Compare
a
fund
to
competitors
under
a
range
of
pressure
tests. Funds
with
similar
goals –
such
as
target
asset
allocations
or
broad
market
exposure –
might
have
different
risk
factor
exposures.

2)
Assess
the
maximum
drawdown. Past
market
scenarios
can
help
you
set
a
realistic
baseline
for
future
market
ups
and
downs.
While
past
performance
doesn’t
guarantee
future
returns,
it
can
help
add
context
to
your
assessment
of
risk
and
reward.

3)
Compare
your
fund
to
an
index
benchmark to
better
understand
the
quality
of
a
fund’s
performance.
What
would
your
alpha
look
like
in
comparison
to
the
S&P
500?
Is
it
worthwhile
to
assume
more
risk
for
potential
greater
gains?

4)
Present
your
ideas
to
your
team. Get
everyone
on
board
with
your
recommendations
when
they
understand
how
risk
modeling
projects
potential
returns.

5)
With
the
new
Morningstar
Direct
Lens,
users
can create,
edit,
and
analyse
portfolios in
one
place.
Understand
how
changes
would
affect
your
portfolio
before
you
make
them.
You
can
see
how
tweaking
positions
and
asset-class
weightings
would
affect
the
projected
performance
of
the
overall
portfolio.

Types
of
Portfolio
Scenario
Analysis

Morningstar
analysts
use
two
types
of
scenario
analysis
to
forecast
potential
outcomes
for
portfolios.

Market-Driven
Scenarios

Market-driven
scenarios
calculate
the
probable
impact
of
past
market
events.
Zero
in
and
explore
how
changes
to
a
single
index
or
security
can
affect
your
investment
or
portfolio.
What
would
happen
to
your
portfolio
if
the
S&P
500
fell
by
10%
this
year?
Or
by
15%!

By
adjusting
the
length
of
the
scenario’s
duration,
the
percentile
of
the
distribution,
and
the
type
of
market
shock,
you
can
pressure-test
your
portfolios
in
a
range
of
possible
scenarios.

Market-driven
scenarios
can
help
you
answer
questions
like:

• How
would
a
fund’s
projected
performance
look?
How
does
that
compare
to
the
index?

•
How
likely
is
any
projected
outcome?
Would
this
shock
trigger
volatility
and
uncertainty?

• What
does
this
reveal
about
the
possible
worst-case
outcomes
for
the
fund?

You
can
compare
data
points
that
assess
the
impact
of
market
shocks
(good
and
bad)
on:

• Factor
exposure;

• Portfolio
return;

• Value
at
Risk—the
potential
of
loss
with
a
given
probability;

• Conditional
Value
at
Risk—mean
loss
of
a
portfolio
below
the
user-specified
percentile.

Stock
market
scenarios
prepare
you
to
ask
more
informed
questions
and
deeply
analyse
underlying
holdings.
See
how
a
portfolio
compares
to
a
benchmark
index
and
target
sector
allocation,
or
evaluate
individual
risk
factor
exposures
at
the
portfolio
level.

Macrofinancial
Scenarios

These
models
calculate
the
impact
of
user-specified
macroeconomic
and
financial
system
shocks.
If
the
2007-09
sub-prime
mortgage
crisis
happened
today,
how
would
your
portfolio
perform?
Would
it
beat
a
relevant
benchmark?
If
not,
how
would
adjusting
individual
securities
close
the
gap?

Macrofinancial
scenarios
help
you
understand
the
drivers
of
market
risk
in
historical
scenarios
and
apply
your
findings
to
forward-looking
decisions.
They
can
answer
questions
like:

• How
would
my
portfolio
perform
in
a
severe
or
long-lasting
bear
market?

• How
am
I
capturing
the
upside
of
regional
economic
tailwinds
or
sector
booms?

Evaluate
investment
portfolios
under
past
macrofinancial
scenarios
like:

• Global
macroeconomic
events,
like
the
coronavirus
outbreak;

• US-specific
events,
like
the
mid-2011
showdown
over
the
debt
ceiling;

• Emerging
markets
events,
like
the
2006
sell-off;

• European
markets
events,
like
the
2010
Greek
debt
crisis.

While
the
past
doesn’t
predict
the
future,
you
can
ground
your
expectations
for
fund
or
portfolio
performance
under
macro
headwinds.
Evaluate
data
points
like:

• Projected
cumulative
returns;

• Alpha;

• Max
drawdown;

• Return;

• Standard
deviation;

• Tracking
error.

In
Morningstar
Direct
Lens,
you
can
also
create
custom
scenarios
and
see
how
macroeconomic
variables
affect
a
portfolio’s
risk
and
return.

Custom
scenarios
allow
you
to
turn
up
and
down
the
intensity
of
different
factors
for
deeper
levels
of
analysis.
Specify
multiple
shocks
at
different
points
in
time
and
calculate
the
expected
risk
and
return
of
the
portfolio.

An
Easier
Way
to
Analyze
Portfolios

The
Morningstar
Direct
Lens
interface
makes
it
easy
to build,
edit,
and
analyse
portfolios.
In
one
place,
you
can
look
through
individual
holdings
and
roll
up
exposure
across
the
portfolio.

The
new
tool
combines
attribution
with
the
deep,
broad
funds
and
competitive
analysis
data
you
trust
from
Morningstar.
See
it
for
yourself
with
a 20-minute
demo.

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