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.

1.03 The market-cap-weighted price/fair value ratio for our global equity coverage universe is about 3% overvalued, writes Elizabeth Collins, Morningstar's director of equity research for North America. Financial services and healthcare are the most undervalued sectors, both with price/fair value estimate ratios of 0.94. Basic materials and energy are the most overvalued sectors, with price/fair value estimate ratios of 1.28 and 1.22, respectively.

156,000 The economy created 156,000 new jobs in September, the Bureau of Labor Statistics said Friday. This was a bit lower than estimates, but higher than Morningstar director of economic analysis Bob Johnson was expecting.

"I think we've settled into a low-growth pattern here. And with the type of GDP growth that we have, job growth should be in this 150,000-175,000 range. And now, we've had a couple of months in a row of that kind of level. And we've brought the averages back down to something in that neighborhood, so maybe the big adjustments are over. And the report was really kind of boring."

0.04% BlackRock announced Wednesday week that it dropped its fees on its iShares Core products, effectively positioning the iShares Core S&P 500 ETF as the cheapest S&P 500 index-tracker available to non-institutional investors. (It now charges 4 basis points, compared with 4.5 basis points for Fidelity 500 Index fund and 5 basis points for Vanguard 500 ETF.) Morningstar director of ETF research Ben Johnson says that the lower fees are an overall positive for investors.

"I certainly wouldn't advise people switch between these, because oftentimes there would be tax implications. But what you see is that it is an unabashed good, an unabashed positive, unequivocally fantastic for investors that they can now invest in broad market-cap-weighted index funds and ETFs for fees that cost less in some cases than a good cup of coffee."

115 The maximum age humans can live to may be 115 years old, according to a study in the journal Nature and featured in a story in the New York Times this week.

"The shift toward growth in ever-older populations started slowing in the 1980s; about a decade ago, it stalled. This might have occurred, Dr. Vijg and his colleagues said, because humans finally have hit an upper limit to their longevity."

3% In an interview with Christine Benz, Vanguard founder Jack Bogle predicted muted returns for stock and bond markets over the next decade. According to Bogle, the return of a 50%/50% stock/bond portfolio over the next decade will clock in at roughly 3%, and that's before factoring in fees, inflation, taxes, and more.

"...You've got that 4% for stocks, 2.5% for bonds. And we'll use a 50-50 portfolio, because it makes the math easier, as around 3%. ... Now, that's the good news, if you will. The bad news is, these are market returns and nobody captures the total market return. Even a good index fund, S&P 500, say, or a total bond market, it captures the total return of the market by--the market return itself minus five one hundredths of 1%. That's probably going to be as well as you can do."

6 Morningstar director of manager research Russ Kinnel reviews six funds in the small-growth Morningstar Category that our analysts rate highly.

4 Morningstar director of personal finance Christine Benz points out four mistakes for investors to avoid in a low-return environment.

"As sensibly derived as muted-return forecasts from Bogle and others are, however, the real question is this: What should you do with this information? ...All of this talk about muted returns over the next decade could prompt a host of actions that, in hindsight, prove to be ill-advised. If you've been hearing that you should keep your near-term expectations in check but aren't sure about how that should affect your investment strategy, here are some of the key mistakes to avoid."

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