Target Allocation Reports
Definitions
Average Effective Duration: Average effective duration is a time measure of a bond’s interest rate sensitivity. Average effective duration for a portfolio is a weighted average of the duration of the underlying fixed income securities within the portfolio.
Average Effective Maturity: Average effective maturity is a weighted average of all the maturities of the bonds in the portfolio, computed by weighing each maturity date by the market value of the security.
Equity Style / Capitalization
Morningstar offers visual representations that aim to provide easy to understand positioning characteristics for a particular portfolio called equity style boxes. The goal is to provide decision makers with tools for comparing assets and how well they fit together. As reflected on the horizontal axis, companies are grouped together based on investment style making up 3 categories called Value, Blend, and Growth. Based on company’s market capitalization, Morningstar groups companies into 3 categories consisting of Large, Medium, and Small as reflected on the vertical axis.
Large Value: Large‐value portfolios invest primarily in big U.S. companies that are less expensive or growing more slowly than other large‐cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large‐cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). Category Group Index: S&P 500 TR, Category Index: Russell 1000 Value TR USD, Morningstar Index: Morningstar US Large Val TR USD
Large Blend: Large‐blend portfolios are fairly representative of the overall U.S. stock market in size, growth rates, and price. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. These portfolios tend to invest across the spectrum of U.S. industries, and owing to their broad exposure, the portfolios’ returns are often similar to those of the S&P 500 Index. Category Group Index: S&P 500 TR, Category Index: Russell 1000 TR USD, Morningstar Index: Morningstar US Large Cap TR USD
Large Growth: Large‐growth portfolios invest primarily in big U.S. companies that are projected to grow faster than other large‐cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Most of these portfolios focus on companies in rapidly expanding industries. Category Group Index: S&P 500 TR, Category Index: Russell 1000 Growth TR USD, Morningstar Index: Morningstar US Large Growth TR USD
Mid‐Cap Value: Some mid‐cap value portfolios focus on medium‐size companies while others land here because they own a mix of small‐, mid‐, and large‐cap stocks. All look for U.S. stocks that are less expensive or growing more slowly than the market. The U.S. mid‐cap range for market capitalization typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S equity market. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). Category Group Index: S&P 500 TR, Category Index: Russell Midcap Value TR USD, Morningstar Index: Morningstar US Mid Val TR USD
Mid‐Cap Blend: The typical mid‐cap blend portfolio invests in U.S. stocks of various sizes and styles, giving it a middle‐of‐the‐road profile. Most shy away from high‐priced growth stocks but aren’t so price‐conscious that they land in value territory. The U.S. mid‐cap range for market capitalization typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. Category Group Index: S&P 500 TR, Category Index: Russell Midcap TR USD, Morningstar Index: Morningstar US Mid Cap TR USD
Mid‐Cap Growth: Some mid‐cap growth portfolios invest in stocks of all sizes, thus leading to a mid‐cap profile, but others focus on midsize companies. Mid‐cap growth portfolios target U.S. firms that are projected to grow faster than other mid‐cap stocks, therefore commanding relatively higher prices. The U.S. mid‐cap range for market capitalization typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Category Group Index: S&P 500 TR, Category Index: Russell Midcap Growth TR USD, Morningstar Index: Morningstar US Mid Core TR USD
Small Value: Small‐value portfolios invest in small U.S. companies with valuations and growth rates below other small‐cap peers. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. Value is defined on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). Category Group Index: S&P 500 TR, Category Index: Russell 2000 Value TR USD, Morningstar Index: Morningstar US Small Val TR USD
Small Blend: Small‐blend portfolios favor U.S. firms at the smaller end of the market‐capitalization range. Some aim to own an array of value and growth stocks while others employ a discipline that leads to holdings with valuations and growth rates close to the small‐cap averages. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. Category Group Index: S&P 500 TR, Category Index: Russell 2000 TR USD, Morningstar Index: Morningstar US Small Cap TR USD
Small Growth: Small‐growth portfolios focus on faster‐growing companies whose shares are at the lower end of the market‐capitalization range. The portfolios tend to favor companies in up and‐coming industries or young firms in their early growth stages. Because these businesses are fast‐growing and often richly valued, their stocks tend to be volatile. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Category Group Index: S&P 500 TR, Category Index: Russell 2000 Growth TR USD, Morningstar Index: Morningstar US Small Growth TR USD
Fixed Income: Fixed Income broadly refers to income-oriented debt securities typically bonds and other interest-bearing debt instruments. Entities like corporations, governments, and municipalities, etc., looking to raise funds for various purposes issue debt in exchange for agreeing to pay fixed income investors interest payments at regular intervals until the date of maturity. At the time of maturity, the principal investment is paid back to the investor.
Fixed Income Credit Quality: Morningstar calculates portfolio credit quality based on the credit ratings of the portfolio holdings sourced from recognized credit rating agencies that qualify as (NRSRO) Nationally Recognized Statistical Rating Organizations or by the SEC in the U.S. Morningstar identifies fixed income investments that have an average credit rating of AAA or AA as high quality, investments with an average rating of A or BBB medium quality, and those rated below BB (B or Below B) are low quality. As defined by Morningstar, AAA indicates an extremely strong ability to make timely interest payments and ultimate principal payments on or prior to a rated final distribution or maturity date. The AA category indicates a very strong ability to make timely interest and ultimate principal payments on or prior to a rated final distribution or maturity date. The single A category indicates a strong ability to make timely interest and ultimate principal payments on or prior to a rated final distribution or maturity date, but that ability could be influenced by adverse changes in circumstances or conditions, such as adverse business or economic conditions. The BBB category indicates the ability to make timely payments of interest and ultimate principal payments on or prior to a rated final distribution or maturity date, but that ability could be impacted by adverse changes in circumstances or conditions, such as adverse business or economic conditions. The BB category indicates the ability to make timely payments of interest and ultimate payment of principal on or prior to a rated final distribution or maturity date in the absence of various adverse circumstances or conditions such as adverse business or economic conditions. The single B category indicates a default has not yet occurred, but the issuer or securities are vulnerable to adverse changes in the business or economic environment. Securities rated in the B category are more vulnerable to nonpayment of timely interest and ultimate payment of principal on or prior to a rated final distribution date than higher rated securities. Bonds with a rating of lower than B sometimes referred to junk bonds or high-yield bonds can be considered speculative. NR/NA designation is applied by Morningstar to those securities it does not rate that may reflect a lack of rating available through Moody’s, S&P, or NRSRO. For more information on credit quality and ratings, please reach out to your financial professional.
Morningstar Sector Definitions
Basic Materials: Companies that manufacture chemicals, building materials and paper products. This sector also includes companies engaged in commodities exploration and processing.
Consumer Cyclical: This sector includes retail stores, auto and auto parts manufacturers, companies engaged in residential construction, lodging facilities, entertainment companies, and restaurants.
Financial Services: Companies that provide financial services which includes banks, savings and loans, asset management companies, credit services, investment brokerage firms, and insurance companies.
Real Estate: This sector includes mortgage companies, property management companies and REITs.
Communication Services: Companies that provide communication services using fixed-line networks or those that provide wireless access and services. This sector also includes companies that provide internet services such as access, navigations, and internet related software and services.
Energy: Companies that produce or refine oil and gas, oil field services and equipment companies, and pipeline operators. This sector also includes companies engaged in the mining of coal.
Industrials: Companies that manufacture machinery, hand-held tools, and industrial products. This sector also includes aerospace and defense firms as well as companies engaged in transportation and logistics services.
Technology: Companies engaged in the design, development, and support of computer operating systems and applications. This sector also includes companies that provide computer technology consulting services and companies engaged in the manufacturing of computer equipment, data storage products, networking products, semi-conductors, and components.
Consumer Defense: Companies engaged in the manufacturing of food, beverages, household and personal products, packaging, or tobacco. Also includes companies that provide services such as education & training services.
Healthcare: This sector includes biotechnology, pharmaceuticals, research services, home healthcare, hospitals, long-term care facilities, and medical equipment and supplies.
Utilities: This sector includes electric, gas, and water utilities.
The data presented for Cyclical, Sensitive, and Defensive Sectors represents the percentage of DWM holdings in each sector of the DWM model portfolio presented, for the time period presented. Data presented for the S&P 500©TR USD Index is for illustrative purposes only and represents percentage of holdings in each sector of securities listed on this benchmark for the time period presented. S&P 500©TR USD Index: The Standards and Poor’s 500 Index (S&P 500) is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Total Return (TR) indexes include daily reinvestment of dividends. Indexes do not account for management fees, are unmanaged and cannot be invested in directly.
Stock Regions
Morningstar divides countries of the world into 13 different geographic regions. These regions serve as the basis for the region breakdown portfolio calculation. The region breakdown helps investors evaluate their equity exposure in various markets. The 13 regions can also be folded into three super geographic regions: the Americas, Greater Europe and Greater Asia. The following major economies included in the regions named in this presentation are listed below:
North America – Canada, United States; Latin America – Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela; Greater Europe – Albania, Austria, Belarus, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Greenland, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Netherland, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Africa, Middle East; Greater Asia – Afghanistan, American Samoa, Australia, Bahrain, Brunei, China, French Polynesia, Guam, Hong Kong, India, Indonesia, Israel, Japan, Jordan, Kuwait, Lebanon, Macau, Malaysia, New Caledonia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand The complete list of countries included in each region is available upon request.
Trailing 12 Months Yield: Yield is a measure of the fund’s income distributions, as a percentage of the fund price. Morningstar calculates this figure by summing the income distributions over the trailing 12 months and dividing that by the sum of the last month’s ending NAV plus any capital gains distributed over the 12‐month period. Morningstar adds back capital gains to estimate what the fund’s ending price would have been had it not distributed these gains; this makes the result more comparable to a stock yield because stocks do not distribute gains but rather simply increase in price. Income distributions include interest from fixed‐income securities, dividends from stocks, and realized gains from currency transactions.
The information shown for fixed income represents the Average Effective Duration, Average Effective Maturity, and Trailing 12 Months Yield for the DWM strategic allocation for the time period presented. The AGG data presented is for illustrative purposes. The AGG represents the Bloomberg US Aggregate Index – the standard benchmark for fixed income market. The AGG Index constitutes the total investment grade bond market in the US that includes fixed income securities such as Treasuries, government related securities, Mortgage-backed Securities (MBS), Asset-backed security (ABS), Commercial mortgage-backed securities (CMBS), and corporate bonds. Data sourced from Morningstar. Indexes do not account for management fees, are unmanaged and cannot be invested in directly.
