Morningstar’s Annual Global Asset Flows Report Shows Slowing Demand for Global Markets as 2016 Inflows Decrease

Investors turn to fixed income and money market category groups in 2016 looking for less risky assets

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its fifth annual Global Asset Flows Report examining worldwide 2016 mutual fund and exchange-traded  product (ETP) asset flows. Worldwide flows decreased to $728  billion in 2016  from $1 trillion in 2015, signaling slowing demand for global markets. Outside the United States, flows were mostly evenly distributed among the three other major regions analyzed by Morningstar: cross-border funds, which are available in multiple markets, Europe, and Asia, with flows of $138 billion, $103 billion, and $134 billion, respectively. The U.S. fund industry had new asset flows of $288 billion, an increase from $260  billion in 2015.

“2016 was a year of modest growth around the world, with heightened uncertainty due in part to extraordinary political events,”  Alina Lamy, senior markets  analyst for Morningstar,  said. “Investors are reacting to this turbulent environment by going back to the basics, looking for less risky assets, positioning their portfolios in expectation  of rising interest rates, or selling off equities after a significant run-up. More specifically, fixed-income strategies saw the largest flows globally in 2016 and commodity funds experienced a high organic growth rate, with the largest inflows going to the precious metals category.”

Highlights from Morningstar’s 2016 Global Asset Flows Report include:

• The pattern of flows by category group notably differed from 2015. In 2016, the category groups that received the largest flows were fixed income and money market with flows of $412 billion and $196 billion, respectively. In 2015, the top-receiving category group was equity, with $346 billion, followed by allocation, with $167 billion. In terms  of organic growth rates, commodities grew the fastest at 25.7 percent in 2016.
• Vanguard continued to dominate the asset management industry last year, sustained and propelled by the growing popularity of index strategies. Vanguard, with net inflows of $317 billion, is followed by BlackRock/ iShares with net inflows of $154 billion. The fastest-growing firm in the top 10 was State Street, which saw an organic growth rate of 12.5 percent in 2016. Generally, firms that expanded their product lines to include ETPs and lower-cost options have benefited, while those focused on traditional active management have suffered such as Franklin Templeton, which saw an outflow of $72  billion in 2016.

• In the United States, index funds attracted $492 billion in 2016. Their active counterparts, in sharp contrast, saw $204  billion of outflows. In the Asia, cross-border, and Europe regions, however, active flows beat their passive counterparts.
• The largest discrepancy between active and passive flows occurred in the equity category group, with $390  billion going into index funds and  $423  billion flowing out of active funds. Fixed income received inflows across both active and passive strategies worldwide.
• Funds that have a quantitative Morningstar Rating™ of 4 and 5 stars saw inflows in 2016 of $127 billion and $221  billion, respectively, while 1-, 2-, and 3-star funds suffered outflows. Similarly, funds that have a qualitative Morningstar Analyst Rating™ of Gold and Silver attracted the largest inflows of $29  billion and  $14  billion, respectively, and posted the only positive organic growth rates.
• ETP assets continued to grow, reaching $3.6 trillion globally at the end of 2016, signaling that investors are increasingly sensitive to fees.

The Morningstar Global Asset Flows Report is based on assets reported by more than 4,000 fund groups across 85 domiciles. The report represents  more than 95,000 fund portfolios encompassing more than

240,000 share classes and includes a global overview as well as analysis about the United States, Europe, Asia, and cross-border offerings. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETPs by computing the change in shares outstanding.

To view the complete report, please click here. For more information about Morningstar Asset Flows, please visit http://global.morningstar.com/assetflows.

The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages  or losses arising from any use of this information. Past performance is no guarantee  of future results.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent  investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in

the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and

management as of 31 Dec 2016. The company has operations in 27 countries.

Morningstar’s Manager Research  Group consists of various wholly owned subsidiaries of Morningstar,  Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar’s Manager  Research  Group’s current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. This press release is for informational purposes  only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.

Investors turn to fixed income and money market category groups in 2016 looking for less risky assets

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its fifth annual Global Asset Flows Report examining worldwide 2016 mutual fund and exchange-traded  product (ETP) asset flows. Worldwide flows decreased to $728  billion in 2016  from $1 trillion in 2015, signaling slowing demand for global markets. Outside the United States, flows were mostly evenly distributed among the three other major regions analyzed by Morningstar: cross-border funds, which are available in multiple markets, Europe, and Asia, with flows of $138 billion, $103 billion, and $134 billion, respectively. The U.S. fund industry had new asset flows of $288 billion, an increase from $260  billion in 2015.

“2016 was a year of modest growth around the world, with heightened uncertainty due in part to extraordinary political events,”  Alina Lamy, senior markets  analyst for Morningstar,  said. “Investors are reacting to this turbulent environment by going back to the basics, looking for less risky assets, positioning their portfolios in expectation  of rising interest rates, or selling off equities after a significant run-up. More specifically, fixed-income strategies saw the largest flows globally in 2016 and commodity funds experienced a high organic growth rate, with the largest inflows going to the precious metals category.”

Highlights from Morningstar’s 2016 Global Asset Flows Report include:

• The pattern of flows by category group notably differed from 2015. In 2016, the category groups that received the largest flows were fixed income and money market with flows of $412 billion and $196 billion, respectively. In 2015, the top-receiving category group was equity, with $346 billion, followed by allocation, with $167 billion. In terms  of organic growth rates, commodities grew the fastest at 25.7 percent in 2016.
• Vanguard continued to dominate the asset management industry last year, sustained and propelled by the growing popularity of index strategies. Vanguard, with net inflows of $317 billion, is followed by BlackRock/ iShares with net inflows of $154 billion. The fastest-growing firm in the top 10 was State Street, which saw an organic growth rate of 12.5 percent in 2016. Generally, firms that expanded their product lines to include ETPs and lower-cost options have benefited, while those focused on traditional active management have suffered such as Franklin Templeton, which saw an outflow of $72  billion in 2016.

• In the United States, index funds attracted $492 billion in 2016. Their active counterparts, in sharp contrast, saw $204  billion of outflows. In the Asia, cross-border, and Europe regions, however, active flows beat their passive counterparts.
• The largest discrepancy between active and passive flows occurred in the equity category group, with $390  billion going into index funds and  $423  billion flowing out of active funds. Fixed income received inflows across both active and passive strategies worldwide.
• Funds that have a quantitative Morningstar Rating™ of 4 and 5 stars saw inflows in 2016 of $127 billion and $221  billion, respectively, while 1-, 2-, and 3-star funds suffered outflows. Similarly, funds that have a qualitative Morningstar Analyst Rating™ of Gold and Silver attracted the largest inflows of $29  billion and  $14  billion, respectively, and posted the only positive organic growth rates.
• ETP assets continued to grow, reaching $3.6 trillion globally at the end of 2016, signaling that investors are increasingly sensitive to fees.

The Morningstar Global Asset Flows Report is based on assets reported by more than 4,000 fund groups across 85 domiciles. The report represents  more than 95,000 fund portfolios encompassing more than

240,000 share classes and includes a global overview as well as analysis about the United States, Europe, Asia, and cross-border offerings. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETPs by computing the change in shares outstanding.

To view the complete report, please click here. For more information about Morningstar Asset Flows, please visit http://global.morningstar.com/assetflows.

The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages  or losses arising from any use of this information. Past performance is no guarantee  of future results.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent  investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in

the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and

management as of 31 Dec 2016. The company has operations in 27 countries.

Morningstar’s Manager Research  Group consists of various wholly owned subsidiaries of Morningstar,  Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar’s Manager  Research  Group’s current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. This press release is for informational purposes  only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.