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.

$7.2 billion

2

Heading into wide-moat

"At first blush, the answers to both were disappointing, with U.S. comps increasing 2% (3% excluding hurricane impacts), and expectations of long-term EPS growth of 'at least 12%' falling short of midteens market expectations (versus prior targets of 15%-20% growth). While we'll likely shave a dollar off our $66 fair value estimate for the new growth targets, we still see several positive takeaways … ."

4 It has been a sluggish bull market lately for value investors, particularly those of the small-cap persuasion, writes director of equity strategies Dan Culloton. Through October 2017, the small-value Morningstar Category was lagging most other peer groups' trailing returns for the year to date, one-, three-, and five-year periods. Culloton takes a closer look at some of our best ideas among value-oriented small-cap equity funds.

18 A slump in European dairy production and a surge in world demand has led to a butter shortage that is particularly noticeable in France, a country that by some measures consumes more butter per head than anyplace else, according to The New York Times.

"Last year, France consumed about 18 pounds of butter per capita, according to statistics from a coming report by the International Dairy Federation. That is over twice the European Union average, and more than three times the figure in the United States."

7 Enduring competitive advantages are promising for any company but particularly so for smaller companies with long growth runways, as they have the ability to compound shareholders' capital at high rates of return over long periods of time. We list seven small-cap firms with wide moats, and we take a closer look at four that are trading at an attractive discount to our fair value estimate.

4 The Morningstar Style Box for alternative funds is a new research framework for evaluating liquid alternatives investments. In a pair of articles (here and here) senior analyst Jason Kephart examines funds that fall into the four corners of the alternatives style box and explains how the style box's main components of correlation and volatility can help investors quickly and intuitively gauge a fund's diversification potential.

"Alternative strategies come in many different varieties, and funds within the same Morningstar Category that pursue very similar strategies can still have very different diversification characteristics."

12 After a period of explosive growth, is China likely to fall victim to the "middle-income trap"? Director of basic materials equity research Dan Rohr says China is far from the first country to endure slowing economic growth following its ascent from agrarian poverty to middle-income status. In fact, middle-income countries are disproportionately likely to experience large slowdowns. As a result, few ultimately ascend to high-income status.

"The climb from middle-income to high-income has never been easy. Among the 96 countries categorized as low- or middle-income in 1960, only 12 non-OPEC countries eventually graduated to high-income status. This is the leap China aims to make, which would involve more than doubling GDP per capita from today's level."

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