Morningstar Runs the Numbers

Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

2 million Netflix started off 2018 on a strong note, as it beat its own subscriber guidance once again. The firm continues to expand, adding nearly 2 million new subscribers in the United States and 5.5 million globally. The firm plans to increase the amount it is currently spending on content, however: Netflix now projects to have a cash flow burn of $3 billion to $4 billion in 2018, up sharply from $2 billion in 2017. Analyst Neil Macker still believes the shares are overvalued and is maintaining Netflix's narrow moat rating and $90 fair value estimate.

5 The incredible surge in assets that passively managed products have experienced over the past decade is not hard to understand: Not only do investors want low costs, many also want to simplify their financial lives. Broad-market, ultradiversified products are not only cheap, they provide exposure to giant market segments in a single shot. Yet even as core index funds and ETFs are incredibly transparent and straightforward, some investors remain confused about what index products can and cannot do for their portfolios. Director of personal finance Christine Benz clears up five common misconceptions that can trip investors up.

1 million Rapper Kendrick Lamar's fourth studio album DAMN won the Pulitzer Prize for music Monday. The judges described the album, Lamar's third to sell more than 1 million copies, as "virtuosic," and "capturing the complexity of modern African-American life." This op-ed in The Economist praises the decision to award Lamar the prize, which has always been given to a classical or jazz musician, but contends that the award went to the wrong album.

60% Passive analyst Adam McCullough continued his work on Dunn's Law, which states that when an asset class does relatively well, an index fund in that asset class does even better. McCullough found that of the active funds that beat passive funds in a category, only 60% of the outperformance is attributable to factors like variations in size, value, market risk, and international stocks. In other words, stylistic differences between active and passive managers contribute to the variation in active managers' performance, but they don't tell the whole story and the results don't always line up with the predictions of Dunn's Law.

5 Speaking of passive investing, check out Morningstar's weeklong Guide to Passive Investing. For five days, we tackled the issues that matter most to index investors and named some highly rated passive funds and ETFs that make great portfolio building blocks.

13 New York Attorney General Eric Schneiderman recently announced that 13 fund companies had voluntarily agreed to disclose a measure called "active share" to retail investors. The attorney general's argument seems to center on the idea that active share can be used to assess whether an actively managed fund is charging a fair fee. But does that argument pan out? Jeff Ptak, Morningstar's head of global manager research, isn't convinced. After running the numbers, Ptak says that while active share can be useful, it's probably not a must-have.

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