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% to 2.2% Our director of economic analysis, Bob Johnson, reduced his expectation for core inflation for the rest of the year from 2.4% to 2.6%, to 2% to 2.2%. Among the reasons he cited was that oil prices spiked earlier in the year than he had anticipated.

"We saw kind of a big spike in inflation--I think we may back off the rest of the year with so much of the price index being moved around by gasoline and then affecting other categories as well. And then in terms of core, I really don't think housing inflation is going to get any worse, which was the key thing driving that core higher. I don't think that's in the cards. So, we've, kind of, brought that in just a little bit."

2 With interest rates on the rise, utilities investors aren't likely to enjoy the valuation uplifts that they've seen over the past few years, says equity strategist Travis Miller. Instead, to get their cash total returns, investors are going to have to rely on the yields in the market right now and the growth of those dividends. In the utilities sector, Miller thinks there are two trends that can support that growth, and the yields right now are still attractive in the market.

1889 On March 31, 1889, to honor the 100th anniversary of the French Revolution, the French government held a design competition for a monument to be built on the Champ-de-Mars in central Paris, as explained in this History.com article. Out of more than 100 designs submitted, the committee chose Alec Eiffel's open-lattice wrought-iron tower.

"Eiffel's tower was greeted with skepticism from critics who argued that it would be structurally unsound, and indignation from others who thought it would be an eyesore in the heart of Paris. Unperturbed, Eiffel completed his great tower under budget in just two years. … The light, airy structure was by all accounts a technological wonder and within a few decades came to be regarded as an architectural masterpiece."

44% Basic materials stocks are trading at a whopping 44% premium to intrinsic value (on a market-cap-weighted basis), says Daniel Rohr, director of basic materials equity research.

"Metals and mining stocks look especially expensive. Metals prices have been propped up by a combination of Chinese stimulus and supply cuts, but neither source of strength looks sustainable. [On the other hand] U.S. housing plays remain among the pockets of opportunity in an otherwise overvalued sector. We expect housing activity will continue to build momentum in the remainder of the year."

9 In March, the Morningstar Wide Moat Focus Index swapped out nine stock positions. The index was also able to outpace the index during the first quarter of 2017 owning to its healthcare bets and zero weighting in energy. Click here to see the nine positions we replaced, as well as a more detailed look at first-quarter performance.

7 A high level of inflows or outflows can be very disruptive for mutual funds, says director of manager research Russ Kinnel. The real harm comes if the manager has to trade so much that it causes trading costs to soar or forces a change to the way the fund is managed--or both. Kinnel used fund flows data along with the bloat ratio--a measure that infers likely trading impact by looking at liquidity of holdings and volume of trading--to identify seven funds that are showing worrisome signs of bloat.

7 Although the news that BlackRock sidelined seven of its equity-fund managers in favor of stock-picking models didn't make too many front pages, John Rekenthaler explains why, within the small world of professional money management, it was a big story indeed.

"... Fund managers no longer benefit from trade secrets. Back in the day, corporate executives freely chatted with investment professionals, particularly those who held their company's shares and/or controlled a great deal of money. They would discuss their company's latest developments, as well that those of their industry. That information gave fund managers a significant edge on the rest of us. ... That benefit is mostly gone."

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