Morningstar Prepares to Launch Its Own Funds

The changes will affect only the actively managed funds in the Managed Portfolios lineup, including the Mutual Fund and Active/Passive Asset Allocation, Retirement Income, Multi-Asset Income and Absolute Return Portfolios, which could have tax consequences. No changes are expected in the ETF Asset Allocation Portfolios or Select Equity Portfolios, which invests directly in stocks and other securities.

The SEC filing suggests that any tax consequences will be limited because about two-thirds of the assets in Managed Portfolios are currently in tax-exempt accounts. For those that aren't, Morningstar says it "will make every effort to minimize the tax impact" of the changes.

The nine new funds in the Morningstar Funds Trust include three stock funds, four bond funds, a total return allocation fund that can invest in stocks and bonds, and an alternatives fund. All but two have multiple managers, and their expense ratios range from 52 to 129 basis points, initially. Morningstar will "waive all or a portion of its advisory fees and, if necessary, … assume certain other expenses" for at least one year, according to the SEC filing.

Here is a list of the nine funds, their subadvisors and expense caps, which are applicable for at least one year from the date of their individual prospectus:

Morningstar U.S. Equity Fund (MSTQX).

Expense Cap:  0.87% Subadvisors: ClearBridge Investment, Diamond Hill Capital Management, Levin Capital Strategies, MFS Investment Management, Wasatch Advisors, Westwood Management

Morningstar International Equity Fund (MSTFX)

• Expense Cap:  1.01%
• Subadvisors: Harding Loevner, Harris Associates, Lazard Asset Management, T. Rowe Price

Morningstar Global Income Fund (MSTGX)

• Expense Cap: 0.89%
• Subadvisor: Schafer Cullen Capital Management

Morningstar Total Return Bond Fund (MSTRX)

• Expense Cap: 0.55%
• Subadvisors: BlackRock Financial Management, Western Asset Management

Morningstar Municipal Bond Fund (MSTPX)

• Expense Cap:  0.63%
• Subadvisors: T. Rowe Price Associates, Wells Capital Management

Morningstar Defensive Bond Fund (MSTBX)

• Expense Cap: 0.51%
• Subadvisor: First Pacific Advisors

Morningstar Multisector Bond Fund (MSTMX)

• Expense Cap: 0.80%
• Subadvisors: Franklin Advisers, Loomis, Sayles & Co., TCW Investment Management

Morningstar Unconstrained Allocation Fund (MSTSX)

• Expense Cap: 1.00%
• Subadvisors: Brandywine Global Investment Management, Lazard Asset Management

Morningstar Alternatives Fund (MSTV)

• Expense Cap: 1.29%
• Subadvisors:  SSI Investment Management, Water Island Capital