## The Year 2010 in Review 

## Industry Overview 

We monitor developments in the economic and financial information industry on an ongoing basis. We use these insights to help inform our company strategy, product development plans, and marketing initiatives. 

Following a strong market rebound in 2009, the U.S. market gained 16.8% in 2010, as measured by Morningstar’s U.S. Market Index, a broad market index. Most global markets also had positive returns for the year. Morningstar’s Global Ex-U.S. Index rose 12.6%. 

Total U.S. mutual fund assets rose to $11.8 trillion as of December 31, 2010, compared with $11.1trillion as of December 31, 2009, based on data from the Investment Company Institute (ICI). Although aggre- gate cash flows to mutual funds were strong for the year, investors continued to heavily favor fixed-income funds rather than equity funds. U.S. stock funds had negative net cash flows for the year, although less so than in 2009. Global mutual fund assets showed a similar trend, with total assets increasing but asset flows favoring fixed-income funds. 

The number of mutual funds in the United States continued to con- tract slightly to about 7,600 in 2010 (excluding multiple share classes) from 7,700 in 2009, based on data from the ICI. The number of global mutual funds increased to about 69,000 as of September 30, 2010, compared with 66,000 as of September 30, 2009, based on ICI data. 

We estimate that hedge funds included in Morningstar’s database had about $3 billion in net inflows through November 30, 2010, compared with $51billion in net outflows for the same period in 2009. 

ETFs continued to increase in popularity relative to traditional mutual funds. The U.S. ETF industry closed out 2010 with nearly $1 trillion in assets under management based on Morningstar’s data, up from about $780 billion at the end of 2009. 

Based on data from Nielsen/Net Ratings, aggregate page views and the time spent per visit for financial and investment sites in 2010 both declined by about 20% compared with 2009, while the number of unique visitors was down about 10%. We believe these trends reflect individual investors’ lower level of interest in financial- and investment-related content in the wake of the market downturn. Metrics such as pages viewed per visit and time spent per visit also declined for Morningstar.com in 2010. 

Despite these trends, we believe online advertising spending by financial services companies rose sharply in 2010 after reductions in 2008 and 2009. Magna, a division of Interpublic Group, estimates that global online advertising revenue rose about 7% across all industries in 2010, following a 3% decline in 2009. 

In the wake of the global financial crisis, regulators continued to implement new rules for financial services companies. One of the significant developments in Asia last year was the introduction of new regulations and requirements to enforce additional risk disclo- sures on investment products. Regulators introduced new documents such as the Key Facts Statements in Hong Kong and Product Highlights Sheets in Singapore in 2010 to enhance product transpar- ency and to set an overall disclosure standard for investment prod- uct documents. We’ve continue to enhance our database and products to help our clients meet these new regulations. 

In Australia, there are numerous regulatory reviews underway related to industry-wide standards for the superannuation industry, as well as fiduciary standards and compensation structures for financial advisors. While we expect these reviews to put pressure on pricing for product providers and result in further consolidation, we believe the superannuation guarantee rates will support continued asset growth. We believe these trends, along with an emphasis on inde- pendent research, continue to make Australia an attractive market for Morningstar and other third-party research providers. 

In the European Union, Undertakings for Collective Investments in Transferable Securities (UCITS) is a set of EU Directives designed to enable funds to operate across the EU based upon authorization from one state regulator. UCITS IV, approved by the European Parliament in January 2009 and coming into effect in July 2011, is largely designed to reduce inefficiencies that exist within the current UCITS III framework. The directive includes several key sec- tions, including requirements for a new Key Investor Information Document (KIID), an easy-to-read annual factsheet that replaces the Simplified Prospectus. 

Every UCITS fund that is promoted to retail investors will have to produce a KID and issue an updated copy within the first 25 business days of each calendar year. We’ve developed prototype documents for the KID and expect to begin providing this service in 2011. 

