Weekly Wrap: Top Value Funds, Best International Companies, and Inflation Hedges That Haven't
Plus, how to speculate prudently.
Russia, Ukraine, the Market, and Your Portfolio
Russia-Ukraine tensions weighed on markets this week. Dan Kemp, Morningstar Investment Management’s global chief investment officer, says investors typically manage geopolitical risk in one of four ways--and some of those ways are better than others. Read Dan’s take on how to think about geopolitical risk and your portfolio in "How Should Investors Manage Risks Like a Ukraine War?"
Top Funds for Value’s Revival
Value stocks have been in the driver's seat lately: As I write this, the Morningstar US Value Index has outrun the Morningstar US Growth Index by nearly 14 full percentage points so far this year.
Is it time to re-examine your portfolio’s exposure to value stocks?
I’m no market-timer, but one could certainly argue that value stocks should have more room to run, given their still-striking underperformance of growth stocks for the trailing three-, five-, and 10-year periods. But we’ve heard that story before. A more compelling case for checking in on your value exposure: Investors may find that their once-balanced portfolio might be skewed toward growth stocks despite value’s recent superiority, given growth stocks’ extended outperformance. Rebalancing may be in order.
If you're in the market for a value fund for whatever reason, my Our Picks article this week has you covered. I took a look at the best value funds--those mutual funds and exchange-traded funds in the large-, mid-, and small-value Morningstar Categories that earn Morningstar Analyst Ratings of Silver or higher. Roughly four dozen funds make the list, and it's an eclectic bunch: active strategies, passive approaches, dividend-focused funds, concentrated portfolios, and more.
Inflation Hedges That Haven’t
This week, my colleague John Rekenthaler examined how well a group of investments that are often considered to be "inflation hedges"--gold, Treasury Inflation-Protected Securities, cryptocurrencies, and energy--have performed since last May, when inflation struck unexpectedly (as John notes, you couldn't find an economist in late 2020 who thought inflation was going to pose a significant threat). "A hedge that doesn't shield against abrupt shocks is a failed hedge," said John. As it turns out, most of these investments have been just that--failed hedges. Read John's column to find out why and how he's now thinking about inflation hedges when constructing a portfolio.
Proving that great minds do, in fact, think alike, Morningstar chief markets editor Tom Lauricella took a deep dive this week into why TIPS funds are losing money. Tom covered how TIPS work, why they've performed the way they have, and what quantitative tightening may mean for them going forward. It's a great read.
Best International Companies
Earlier this year, we introduced our Best Companies to Own: 2022 list. What makes a company among the best? For starters, it has carved out a wide economic moat and therefore maintains unassailable competitive advantages that allow it to fend off competitors--and that economic moat is stable or growing, not eroding. "Best" companies also generate reasonably predicable cash flows, thanks to low operating and financial operating leverage and solid balance sheets. Last, these firms are led by management teams that have a proven track record of solid capital allocation decisions.
This week, my colleague Ruth Saldanha focused on a subset of that list, the best international companies. Two dozen companies made the list. One of the undervalued stocks among them: Anheuser-Busch InBev BUD. We think its shares are worth $90 apiece. Director Philip Gorham calls AB InBev "a monster with vast global scale as well as regional density." He also notes that the brewer boasts one of the strongest cost advantages among the consumer defensive companies our analysts cover.
Stock of the Week: Viacom/CBS
Or should I say, “Paramount.” Taking a page out of Meta/Facebook’s META playbook, Viacom/CBS announced this week its rebrand to Paramount Global PARA. That’s not surprising, considering that the company not only put up solid streaming numbers for the fourth quarter but also updated its streaming guidance for 2024 to 100 million, up from 65 million-75 million. To get there, Viacom/CBS…er, Paramount…will need to spend a lot of money on content.
That increased spend led Morningstar to snip its fair value estimate on the stock to $58 from $61. "We expect the continued investment required to grow the streaming business will limit margin expansion more than we'd previously expected," noted senior analyst Neil Macker. Even after that fair value haircut, shares look quite undervalued.
How to Speculate Prudently
I know that "speculate" and "prudent" aren't words that seem to go together. But in a column this week, Morningstar director of global ETF research Ben Johnson explored the idea of "funny money" (aka "mad money" or "play money")--those dollars that some investors set aside to swing for the fences and speculate with. Ben admitted that there are some pros to funny money ventures. For starters, investors who can scratch that speculative itch with funny money may be less likely to take outsize risks elsewhere in their portfolios. Plus, funny money gambles can be educational and, if you're lucky, rewarding. But funny money can, of course, be fraught with cons if you don't have a plan. Good thing Ben's article includes a framework that can allow investors to speculate with--you guessed it--prudence.
What Your Net Worth Statement Is Telling You A summary of all your assets and liabilities is a crucial first step toward getting a better handle on your finances.
How Should Investors Manage Risks Like a Ukraine War? Here are four ways to handle geopolitical risks in a portfolio, but two may be better than the others.
The Best Value Funds These value-focused mutual funds and ETFs all earn Morningstar Analyst Ratings of Silver or better.
Best International Companies to Own: 2022 Edition These companies from various corners of the globe are well-positioned for the future.
Corporate Leadership Won't Reach Gender Parity Until 2060 at Its Current Rate A Morningstar analysis also found the gender pay gap expanded during the pandemic after years of improvement.
Tesla Stock vs. Alphabet Stock: Which Is the Better Buy Today? Both may be mega-cap growth stocks, but only one is undervalued today.
Portfolio Planning and Personal Finance With Christine Benz
3 Ways to Take Control in a Volatile Stock Market Here are some practical steps for steering your portfolio through uncertain times.
What to Expect From Stocks and Bonds The pros agree: Don't expect buoyant returns from U.S. stocks going forward.
Should You Keep Foreign Stocks Out of Your IRA? Tax considerations suggest yes, but other factors may argue against it.
Is Your Retirement Plan on Track? The answer depends in part on your life stage.
Is Your Portfolio Ready for Rising Interest Rates? With rates on the move, here's how to assess your stock, bond, and cash holdings.
Mutual Funds and Exchange-Traded Funds
The Teams for These 2 Bond Funds Are No Longer Top of the Heap Here are some ratings highlights from January.
Why Some Fund Managers Have to Bet Against Apple and Microsoft Stock Some growth funds are holding smaller positions in mega-cap names to avoid hitting SEC limits.
Funny Money: Speculative Investing When the Stakes Are Low Setting aside some play money could be a way to scratch the itch, but it comes with risks.
7 Charts on the Rapid Ascent of Active ETFs Though tiny, active ETFs generated an outsize share of flows in 2021.
Merck's Stock Is Underappreciated The drugmaker offers investors robust growth and an attractive dividend, notes Morningstar's analyst.
DoorDash Stock Jumps as 4Q Beat Breaks Losing Streak With demand for food delivery remaining strong, the shares are still undervalued.
Xylem, Ecolab, Aptiv, American Water, and Agilent Top List of S&P 500 Companies Widely Held by Sustainable Funds, RBC Capital Says Beneficiaries of growing inflows into ESG, many are also high-quality companies with strong moats.
What Retirees Can Do When Money Runs Short Small living adjustments or an annuity can be an effective solution.
The Inflation Hedges Haven't Hedged When inflation arrived, they slept.
Asset Allocation: The Power of Traditional Thinking Improving upon the common practice is easier said than done.
The Short Answer
The Best Investments for Taxable Accounts With some care, investors can build a tax-efficient portfolio that's diversified, too.
Which Super Bubbly Market Does Jeremy Grantham Think Is About to Pop? Jeremy Grantham predicts a "super scarcity" of commodities and warns of the end of a U.S. stock market superbubble.
These Top Allocation Fund Managers Are Taking on Challenging Conditions Three Morningstar Medalist target-date fund managers shared their insights into how to build portfolios today for long-term success.
A Better Case for ESG Dedication to a cause might improve investor returns.
Investors Flee Bond and U.S. Equity Funds in January Bond and U.S. equity funds endure outflows as investors brace for interest-rate hikes.
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