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4 Insights into Morningstar’s Latest Investment Research

Research to help you understand investing, investors, or the world in a different way

Syl Flood 


Financial professionals look to us to translate a flood of information into research that provides them the context to make informed decisions. To help you stay up-to-date, I’ve compiled a roundup of recent work. Here are four insights about Morningstar’s investment research published in the past month or so:

Fund performance doesn't suffer after manager changes

Investors and advisors have assumed that performance suffers when a manager leaves a fund. Using a quantitative approach, quant analyst Madison Sargis shows that this rule of thumb simply shouldn't be followed. Here are her key takeaways:

  • We find no relationship between any type of management change and future returns.
  • Investors overreact to fund-management changes (flows).

In the coming months, we'll publish a related paper that shows that investment consultants' rule of thumb about three or even five years being enough time to give managers time to prove themselves isn't long enough. 

Scientific evidence of climate change has begun to impact our bottom-up company research

Our approach to incorporating climate science is not normative. That is, we are not making a statement about how we think the world should be. We are simply incorporating climate-related facts into our research as we would with any other facts. Several recent equity research papers have touched on the impact of climate change, including:

  • Travis Miller’s in depth buy-side research report "U.S. Nuclear: Down, But Not Out," which is summarized here.
  • In Seth Goldstein's "We Expect Compass Minerals to Bounce Back," the author contends that more volatile weather—not simply warmer weather—is damaging this company's future prospects. 
  • Tesla & electric vehicles: Our estimate of the achievement of cost parity with internal combustion engine powered vehicles is significantly more aggressive than the consensus (Wall Street's) view. Likewise, our estimate of consumer electric vehicle adoption is also above consensus. 

We're not finished with environmental, social, and governance yet

  • In Europe, Kenneth Lamont published a paper on passive ESG options. Lamont found that while it's not surprising that ESG-focused passive vehicles avoid energy companies, it is a bit of a surprise that these funds' geographic exposures have a significant impact on performance, too. 

  • Natalia Wolfstetter wrote about the ESG-ness of medalist funds. Using the Morningstar risk model, Wolfstetter found that more-sustainable funds had higher exposure to financial health and factors from the Morningstar® Economic MoatTM Rating.

Want to read more? Get a free trial of Morningstar Direct for access to this research and additional information.

Our call on Snap Inc. has been solid

  • We can only hope that the news articles about millennials using the Snap IPO as their entrée to investing were exaggerated. The company IPO price on March 2 was $17. Since the IPO, the stock closed as high as $27.09 but was trading at $16.22 on Oct. 16. 

  • Kudos to analyst Ali Mogharabi, whose IPO fair value estimate was $15 and has stuck with it, with a small increase a few months ago. 

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What’s coming in our next research digest

  • Learn what Don Phillips means by “triple-down economics.”

  • Get an update on how our assumptions of President Donald Trump’s tax reforms will impact our company coverage universe.

  • Find out why you should care about the company behind that exchange-traded fund you’re so excited about owning.

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