• / Free eNewsletters & Magazine
  • / My Account

Related Content

  1. Videos
  2. Articles
  1. Finding the Right Fit for Fundamental Indexing

    Schwab's Tony Davidow says active factor-based investment strategies complement passive index strategies to help enhance portfolio durability over time.

  2. Top Investment Ideas for Retirement

    Retirement Readiness Bootcamp Part 5: Morningstar strategists share their top fund, ETF, and dividend stock picks to fill your retirement portfolio.

  3. PIMCO Total Return: The Mutual Fund vs. the ETF

    The performance differences have narrowed between the two funds recently, and Morningstar's Tim Strauts and Eric Jacobson say PIMCO investors should choose the least expensive option.

  4. Bogle on Fund Industry Progress and Imperfections

    The Vanguard founder offers his thoughts on the need for money fund reform, the dilemmas with retirement planning and savings, the fiduciary duty of fund managers, and much more, in this video exclusive to Premium Members.

June/July 2013 Picks

Five offerings deemed to be right for right now.

Morningstar Analysts, 07/09/2013

This article originally appeared in the June/July 2013 issue of MorningstarAdvisor magazine.  To subscribe, please call 1-800-384-4000.

Stock: Capital One Financial COF
Fair Value Estimate: $74
Morningstar Rating: 4 Stars
Uncertainty: High
Economic Moat: Narrow
Forward P/E: 8.5
Market Cap: $34.4 billion

Capital One has evolved from a monoline credit card company to a diversified holding company offering a broad spectrum of financial products and services to consumers and businesses. As a result of bold acquisitions into traditional and nontraditional banking spaces, Capital One has become the seventh-largest bank by deposits in the United States. Capital One can be generally divided into three segments: credit cards, consumer banking, and commercial banking. It has an astounding 74 million customer accounts. While the company is well-known for its credit-card segment, we think Capital One’s expansion into other consumer and commercial banking businesses will be the primary growth catalyst in the nearer term.
Dan Werner

Mutual Fund: T. Rowe Price Capital Appreciation PRWCX
Category: Large Blend
Morningstar Rating: 5 Stars
Morningstar Analyst Rating: Gold
Expenses: 0.71%
Minimum Investment: $2,500 
Total Assets: $15.2 billion

This broadly diversified fund does a lot of things right. David Giroux oversees a portfolio with an equity weighting of 50% to 70%, where he focuses on undervalued blue chips. The rest of the fund is composed of a mix of traditional bonds, leveraged loans, convertible bonds, and cash; he’ll also write covered call options for additional income. Deft security selection has led the equity, bond, and converts sleeves to each outperform their respective benchmarks during his nearly seven-year tenure, and returns have been remarkably consistent versus the fund’s
moderate allocation peers.
Greg Carlson

Separate Account: Bridgeway Blue Chip 35 Index
Category: Large Blend
Investment Style: Large Blend
Total Number of Holdings: 37
Morningstar Rating: 3 Stars
Total Assets:$407 million

This concentrated fund homes in on the market’s behemoths, but it does so in a sensible way. The fund tracks an in-house index composed of the 35 largest U.S. companies by market capitalization—except it won’t own more than four firms from the same sector, so it must reach further down the market-cap ladder for constituents. The fund further diversifies by weighting its holdings equally rather
than by market cap. The index is typically reconstituted every few years (except
when high market volatility results in big market-cap changes) to keep trading
costs down. This construction method, paired with the fund’s cheap 0.15% expense ratio, has led to fine risk-adjusted returns. 
Greg Carlson

Closed-End Fund: AllianceBernstein Income ACG
Earnings Rate (Share Price): 4.87%
6-Month Average Discount: -8.2%
Total Expense Ratio: 0.64%
Effective Duration: 9.2 years
Leverage Ratio: 1.47
Average Daily Volume: $4.8 million

Any investor looking to make a tactical, long-duration bet should consider this fund. The 0.64% total expense ratio doesn’t appear too impressive at first glance, but shareholders get a lot of bang for their buck. Expenses are inclusive of the financing cost for the portfolio’s 1.47 leverage ratio (total assets/net assets). The fund’s persistent (and sizable) discount gives an extra boost to income, making it an even better bargain. In all, investors can effectively purchase $1.60 in enterprise value for every $1 invested. Nevertheless, the portfolio’s long duration of 9.2 years—a side effect of its high long-dated Treasury exposure—means it isn’t for everyone.
Steven Pikelny

Exchange-Traded Fund: PowerShares International Dividend Achievers Portfolio PID
Morningstar Category: Foreign Large Value
Expense Ratio: 0.56%
Total Assets: $836 million
12-Month Yield: 2.43%
Morningstar Rating: 5 Stars
Average Daily Volume: 211,000

The rationale for domestic dividend investing also applies to the international market. This fund tracks the International Dividend Achievers Index, which selects companies that have increased their annual dividend for the past five years and weights constituents by dividend yield. With this screen, the fund avoids investing in highly distressed stock and has been significantly less volatile relative to other international dividend ETFs. While competing funds offer higher yields, PID’s risk-adjusted total return over the past five years was the highest in its peer group. Abby Woodham

Hindsight: April/May 2012
Charles Schwab SCHW led the way for our four picks from a year ago, trouncing the S&P 500 Index as rising asset-management and administrative fees made up for declining trade volumes. Meanwhile, Artisan Global Value’s ARTGX emphasis on steady growers has paid off over the past year even in a strong market for stocks; it’s well ahead of its MSCI All Country World Index benchmark. A relatively hefty stake in energy firms and a modest weighting in financials has held back the usually strong Harris & Associates Equity & Income. Finally, Barclays S&P 500 Dynamic VEQTOR VQT was far too cautious over the past year.
Greg Carlson


Pick: Charles Schwab Corp SCHW
Type: Stock
Cumulative Return to Date (%): 25.18
Back Then, We Said: “Strong position in personal-investing business…”
Now, We Say: “Weakened interest-rate conditions constraining profits…”

Pick: Artisan Global Value Investor ARTGX
Type: Mutual Fund
Cumulative Return to Date (%): 18.50
Back Then, We Said: “Moving further up the quality spectrum…”
Now, We Say: “Unexpectedly thriving in a bullish environment…”

Pick: Harris & Associates Equity & Income
Type: Separate Account
Cumulative Return to Date (%): 7.29
Back Then, We Said: “Strong risk-adjusted returns over the long haul…”
Now, We Say: “Quirky, but impressive…”

Pick: Barclays S&P 500 Dynamic VEQTOR ETN VQT
Type: Exchange-Traded Fund
Cumulative Return to Date (%): 1.08
Back Then, We Said: “A compelling portfolio diversifier…”
Now, We Say: “A way to access volatility over longer periods…”


The April/May 2012 issue was mailed to subscribers in April 2012.  Return data is from March 31, 2012, through March 31, 2013.


©2017 Morningstar Advisor. All right reserved.