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By Jeremy Glaser and Matthew Coffina, CFA | 03-06-2013 04:00 PM

Adjusting to Today's Challenging Market Environment

Moat trend, valuation, and stewardship all were large factors in StockInvestor editor Matt Coffina's recent adjustments to the Tortoise and Hare portfolios.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm talking today with Matt Coffina. He is the editor of Morningstar StockInvestor. He recently took the helm of the Tortoise and Hare portfolios. We're going to talk a little bit about some recent moves that he has made.

Matt, thanks for talking with me today.

Matt Coffina: Thanks for having me, Jeremy.

Glaser: Matt, let's talk a little bit about your strategy. Can you describe the strategy of these portfolios in a nutshell?

Coffina: Sure. StockInvestor has always followed the same consistent strategy, which is that we buy preferably wide-moat companies--in some cases we'll buy a narrow-moat company--but companies with strong competitive advantages trading at a discount to their intrinsic value. So, we look for companies with low price/fair value ratios.

Glaser: You've made some recent moves. Let's take a look at some of those and see how it fits into that strategy. When it comes to finding wide moats, are there cases when you find opportunities to upgrade the moats in your portfolio? How do you evaluate when it's time to make those upgrades?

Coffina: Well, it's a challenging environment right now. We actually have two wide-moat companies [with Morningstar Ratings for stocks of 5 stars] in our entire coverage universe. Those are Western Union and National Oilwell Varco, both of which were already in Hare portfolio when I took over. I did recently add to our National Oilwell Varco position.

Another wide-moat company that's not quite at the 5-star level, but that I currently like a lot is Express Scripts. This is a company that was formally on my coverage list [as a health-care equity analyst]. It completed the acquisition of Medco last year, which really strengthened the competitive advantage in my view. They now control about one third of pharmaceuticals spending in the United States, which gives them a lot of bargaining power over drug manufacturers, retailers, distributors, and so on.

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