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Investing Specialists

Morningstar Runs the Numbers

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Feb. 23.

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.

Walmart's fourth-quarter earnings went over like a lead balloon with investors Tuesday; the retail giant's shares fell nearly 10% even though the retail giant reported relatively strong comparable-store sales and e-commerce growth. This growth came at the expense of margins, though, explains equity analyst John Brick. 

"Gross margins [fell] 60 basis points to 24.1% due to the firm lowering prices to better compete and the extra variable costs associated with shipping and continued wages, technology, and efficiency investments on tap for 2018. In our view, this supports our more conservative longer-term outlook regarding profitability and likely explains [Tuesday's] pullback." 

Sustainable investing involves the use of environmental, social, and corporate governance, or ESG, criteria to evaluate investments or to assess their societal impact. It's not hard to build a portfolio of funds around sustainable investing because the approach is used across a variety of investment categories, says director of sustainable investing research Jon Hale. In this video, Hale and Morningstar's manager research analysts explore four funds that could serve as core holdings in a sustainable portfolio. 

Target-date funds have been innovative and popular, but have investors used them successfully? Jeff Ptak, director of global manager research, crunched the numbers and found the overall results have been encouraging

"[Investors] steadily contributed assets, explaining why target-date funds have seen outflows in only seven months since March 1994… That steady stream of assets appears to have burnished target-date funds' recent dollar-weighted returns: For the five years ended Jan. 31, 2018, the average dollar invested in target-date funds outpaced the funds' returns by around 0.21% per year, a positive behavior gap."

Morningstar stock analysts cover more than 1,600 companies globally. We wish we could cover them all, but we can't. So we invented a way to greatly expand our reach: the quantitative equity rating, which is a forward-looking quantitative assessment rooted in our analyst process. Here we list 13 small-cap stocks with wide quantitative moat ratings, which is an element of the quantitative equity rating designed to assess the strength of a company's competitive advantages. 

Feb. 23 was the 150th anniversary of the birth of W.E.B. DuBois, an African-American historian, civil rights activist, and writer. In recognition, DuBois' The Souls of Black Folk, a collection of essays on black life and race relations in the United States at the turn of the 20th century, has been republished, said NPR.

"In his introduction to the new edition of The Souls Of Black Folk, [author Ibram X.] Kendi writes that DuBois wanted the world 'to know the humanity of black folk.' Some of the essays, like one about his time as a teacher in the rural South, vividly depict what it was like to be black. Others address the ongoing debates of the time about the best way to improve black lives. Taken as a whole, the book reads like one long poem."

Morningstar Prospects--a list of up-and-coming or under-the-radar investment strategies that our manager research team thinks might be worthy of full coverage someday--added 10 new strategies in the fourth quarter of 2017. We highlight five in this article, and provide a discussion of the performance of the list.

The price of bitcoin hovered around $10,000 this week, and the total market cap of all cryptocurrencies is reported to be around $500 billion. But investors continue to struggle with how to value this speculative instrument, which is part currency, part commodity. In this interview, senior equity analyst Jim Sinegal gleans insights from two experts in the field of cyptocurrencies: Evan Morris, an analyst who leads emerging technology coverage at PitchBook, and Kai Wu, a project manager with Morningstar Data, who leads various blockchain initiatives internally and was recently featured among the "Top 40 Chicago Blockchain Thought Leaders" by FinTank. 

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