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.

10% Keith Schoonmaker explored the impact of President-elect Trump's potential trade policy on the railroads that transport goods between the U.S. and Mexico. He highlights the big chunk of revenue that some firms earn from moving autos across the border.

3.3 Percentage Points Momentum is a pervasive factor in financial markets. Alex Bryan took a look at the how to implement a momentum strategy with index funds in an article this week. He found that an aggressive pure momentum strategy that rotated among sectors outperformed a broad-market strategy by 3.3 percentage points annually from 1992 until July of this this year.

9% Most investors assume that index funds and ETFs are going to be tax-efficient, but Christine Benz pointed out this week that are situations where that it isn't the case.

JP Morgan Equity Index fund OGEAX, an S&P 500 index tracker, is estimating a 9% capital gains distribution in 2016, following on the heels of an even larger distribution in 2015. That's no doubt an unwelcome development for investors who had been counseled to use broad-market index funds in their taxable accounts, but it shouldn't come as a complete surprise. While many equity index funds and exchange-traded funds (especially those that are widely held) have historically been tax-efficient, they're not a foolproof way to avoid taxes until you yourself sell. Special events, such as sizable asset outflows, can trigger larger than expected capital gains payouts. Other funds, despite falling under the index/ETF umbrella, aren't tax-efficient in the first place because they generate lots of income and/or short-term capital gains.

2018

.

Management attempted to shift investor focus from the weak fiscal 2017 to fiscal 2018 and beyond. The firm projects fiscal 2017 EPS growth to be "modest" despite a projected stock buyback of $7 billion-$8 billion. CEO Bob Iger pointed to growth in fiscal 2018 and beyond by noting that the company projects to have a very strong film slate in that year with four Marvel films (including the third Avengers film), three animated films (including Incredibles 2), and two Star Wars films (including Episode VIII). Iger also expects ESPN to benefit from the proliferation of new over-the-top pay TV providers such as DirecTV Now, which is expected to launch this month.

14/15 Vanguard's large-blend index funds beat their competition in 14 out of 15 rolling 10-year periods according to an analysis by John Rekenthaler. He sees costs as being key here.

Vanguard's large-cap index funds are better than the industry average because they are cheaper. Sure, the company does its research in deciding which indexes to offer, and it has almost entirely eliminated tracking error--but, in today's index fund marketplaces, those abilities are door tickets. Cost is what separates the also-rans from the champions.

$84.8 Billion

Cash on

for the fund to make a big acquisition or to buyback shares:

Berkshire also closed out the period with $84.8 billion in cash on its books. After excluding operating cash, as well as cash the firm is likely to earmark for capital expenditures, equity investments, and smaller bolt-on acquisitions, and the $20 billion that CEO Warren Buffett likes to have on hand as a backstop for the insurance business, Berkshire should have at least $50 billion in excess cash available for future acquisitions and/or share repurchases.

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