Asset Allocation

• Cash encompasses both actual cash and cash equivalents (fixed-income securities with a maturity of one year or less) held by the portfolio plus receivables minus payables.

• Stocks includes all of the portfolio�s common stocks.

• Bonds includes everything from government notes to high-yield corporate bonds.

• Other includes preferred stocks (equity securities that pay dividends at a specific rate) as well as convertible bonds and convertible preferreds, which are corporate securities that are exchangeable for a set amount of another form of security (usually common shares) at a prestated price. Other also denotes all those not-so-neatly categorized securities, such as warrants and options.

Morningstar calculates portfolio statistics on the short positions in each fund and displays long, short, and net statistics as appropriate. These enhanced statistics allow investors to evaluate the long and short sides of a portfolio separately and to estimate the fund�s overall net exposure.

Morningstar Direct displays the long, short, and net breakdowns for asset allocation. The percent in each asset class is the total long or short market value in that asset class, divided by the total market value in the portfolio. For example, the portfolio below has $700,000 in long stocks. This is 44.0% of the $1,590,000 total market value of the portfolio.

• The long percentages will always be positive numbers and the short percentages will always be negative numbers. These won�t necessarily add up to 100% independently.

• If there are no short positions or derivatives in the portfolio, the long asset allocation breakdown will add up to 100%. If there are short positions and these are fully collateralized, the long positions will typically add up to more than 100%.

A net asset allocation can be derived by adding together the long and short percentages for each asset class. For example, 44.0% long stock and �1.3% short stock produce a net 42.7% stock position. The net asset class percentages may be either positive or negative, but all of the net percentages will always add up to 100% for asset allocation.

Asset Allocation	Long $	Short $	Long % (provided)	Short % (provided)	Net % (derived)
% Stock	700,000	-20,000	44.0%	-1.3%	42.7%
% Bond	500,000	-40,000	31.4%	-2.5%	28.9%
% Cash	950,000	-500,000	59.7%	-31.4%	28.3%
% Other	0	0	0.0%	0.0%	0.0%
Total	2,150,000	-560,000	135.2%	-35.2%	100.0%
Total market value	1,590,000

 

 Shorts and Derivatives in Portfolio Statistics