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.

Negative 12% The U.S. budget deficit grew in fiscal 2016, but it wasn't spending that was the problem, says Morningstar director of economic analysis Bob Johnson. Rather, less revenue was being brought in through taxes:

"The corporate tax number looked just awful. I mean, for the full year, corporate tax collections were down 12%. So that's a pretty big number and people had thought this wasn't going to be a great year for collections. But this was kind of truly awful. And we knew it wasn't--or we all suspected it wouldn't be a great number because they made a bunch of tax law changes. A lot of the credits and so forth that were set to expire in December were eventually renewed at the eleventh hour. So people had accrued for those and they did end up having to pay them. So kind of went as a credit against future tax bills and that went retroactively. So that certainly hurt the number and we suspected it would."

9 The lines between load and no-load have been blurring for years, but recent Department of Labor rule changes have accelerated the shift, writes Morningstar director of manager research Russ Kinnel. "This change opens up a lot more opportunities for no-load investors," Kinnel says. In this article, he takes a look at nine load firms that have funds available on No Transaction Fee supermarkets, minus the loads.

2 Trillion A team of researchers performed a census of the number of galaxies in the universe using data from NASA's Hubble Space Telescope and other observatories, Discover Magazine's blog reported this week. The team concluded that there are many more galaxies than previously thought:

"We thought the observable universe contained billions of galaxies. But it seems there are at least 2 trillion galaxies out there--10 times greater than astronomers' previous estimates."

Negative 0.22 Morningstar vice president of research John Rekenthaler compared the trailing returns of the oldest share class of 19 actively run Vanguard stock funds, both domestic and foreign, with their closest Vanguard index fund competitors:

"On average, the 19 active funds trailed the index funds by 0.22 percentage points per year during the trailing decade. That amount, perhaps not entirely coincidentally, roughly matches the difference in expense ratios between the two groups."

3 Morningstar director of personal finance Christine Benz warns investors that the markets could experience volatility in the fourth quarter, stemming from three events: the presidential election, interest rates, and capital gains distributions. She offers investors some suggestions for navigating the choppy waters ahead:

"…Investors who keep a closer watch on the news flow and/or their portfolio's values may find themselves rattled by an unexpected turn of events during the fourth quarter. They shouldn't plan to upend their portfolios--that's a good way to turn short-term volatility into permanent capital impairment--but they should brace themselves for volatility and ensure their portfolios aren't taking any unanticipated risks."

20% This week manager research analysts Jason Kephart and Cara Esser, using PIMCO Global StocksPLUS & Income PGP as an illustration, pointed out the risks of buying a closed-end fund trading at a large premium to its net asset value. Due to their use of leverage, CEFs are able to offer yields that are significantly larger than open-end mutual funds, and investors, in their search for yield, have paid an outsize premium for CEFs such as PGP. This premium, Kephart and Esser point out, is unsustainable:

"On Oct. 3 (after the market closed), PIMCO announced a 20% cut to PGP's distribution, lowering it by $0.04 per share to (a still very high) $0.15 per share. The next day, the premium dropped to 71% from 106%, creating a steep one-day trading loss for investors. That premium has bounced back somewhat (it was 83% as of Oct. 7), but shareholders have lost a fair amount in a few short days."

1.7 Million Demand for Cubs playoff tickets may be slightly above the Friendly Confines' capacity:

More than 1.7 million people have registered for the Cubs postseason ticket lottery to date, according to Cubs spokesman Kevin Saghy. Thousands of tickets are available via the drawing, though an official number will not be released.

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