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Weekly Wrap: Top Wide-Moat Stocks of Year, Vanguard Smackdown, Revisiting 2021’s Trendy Topics

And the Fed’s new groove.

The Fed’s New Groove

The Federal Reserve signaled this week what many market participants already knew: Inflation is here to stay, at least for a while. As a result, the Fed announced plans to double the pace of tapering, which likely means the end of asset purchases by early March. "We don't think there will be anything holding the Fed back from rate hikes once tapering is complete," says senior analyst Eric Compton. Our equity research team now expects three rate hikes in 2022 and three more in 2023. They also think that more-hawkish views for rates to top 2% or more in the next couple of years seem aggressive. Find out why in Eric's article.

Vanguard Smackdown

One of the great things about working at Morningstar is that we’re not monolithic thinkers. True, most of us agree on what makes a good fund or a compelling stock. But that doesn’t mean we can’t disagree.

Case in point: Two slightly different angles on Vanguard’s current business were published on this week.

On Tuesday, John Rekenthaler asked, "Has Vanguard Lost Its Way?". John argues that as competitors with deeper pockets squeeze Vanguard's business, the firm has aggressively pursued its personal advisory services. Fair enough--the money to keep the business running has to come from somewhere, and it isn't going to come from low-cost index funds. But Vanguard has created concentrated actively managed funds and has promised private equity offerings to these clients, too--exclusively to these clients. And that seems to fly in the face of the simple, low-cost, democratic mantra that made Vanguard famous. "A Vanguard that offers private-equity investments and an advisory service that features exclusive funds isn't Jack Bogle's Vanguard," he concludes.

On Wednesday, Morningstar's Vanguard specialist, Alec Lucas, painted a similar picture but drew a somewhat different conclusion. Alec agrees that the personal advisor services (and its exclusive offerings) are a departure for Vanguard--and he thinks advice is Vanguard's future. "I think that 10, 15 years from now, we'll be talking about Vanguard, the advice provider," he says. Alec argues that Vanguard has democratized beta, and is now embarking on blending that with an advice context to help investors "do the right things for the right reasons at the right time." Hmm, that sounds like something that Bogle might've actually gotten behind.

Top Wide-Moat Stocks of the Year

In my Our Picks column this week, I took a look the 10 wide-moat stocks that’ve performed best in 2021. What company tops the list? Nvidia NVDA, with a remarkable 131% gain. In fact, all of the names on the list were pretty remarkable this year, returning in excess of 60% each (versus a still-good 22% for the broad market).

Do any of these names have gas left in the tank for 2022? Funny you should ask--there is one stock on the list that is undervalued according to our metrics. Read the article to find out what it is.

Stock of the Week: Pfizer

It was a pretty good week for Pfizer PFE. The wide-moat drug maker announced plans to acquire Arena Pharmaceuticals, nabbing an important immunology drug in the process that will help drive long-term growth.

"With Pfizer gaining a windfall of cash from its COVID-19 vaccine (and from the likely upcoming launch of COVID-19 treatment Paxlovid) combined with some major patent losses after 2025 (cardiovascular drug Eliquis and cancer drug Ibrance), we view this deal as just one of several more likely tuck-in acquisitions Pfizer will target," says sector director Damien Conover.

And speaking of those COVID-19 windfalls, there may be more to come: Also this week Pfizer released the final results of a previous study confirming that its COVID-19 pill proved nearly 90% effective in preventing hospitalization and death among high-risk cohorts.

Pfizer’s stock price looks a little overvalued to us today; we think shares are worth $45.50 apiece. Read more from Damien about Pfizer in “Why Pfizer is Formidable.”

Revisiting 2021’s Trendy Topics

This week we revisited two of 2021's trendiest topics. Morningstar portfolio strategist Amy Arnott kicked things off by examining the gap between Ark Innovation ETF's reported total returns and investors' actual results. What did she find? That the average investor earned only about one fourth of ARKK's returns during the past five years. "The difference between ARKK's time- and dollar-weighted returns comes down to a simple reason: Most of its returns came when fewer shareholders were around to benefit from them," explains Amy. Indeed, as frequently happens with volatile funds, investors are often late to the party. To wit: ARKK is down about 25% this year.

In a similarly volatile vein, my colleague Jakir Hossain revisited the performance of 16 of 2021's hottest meme stocks, including GameStop GME and AMC AMC. All are trading more than 40% below their 52-week highs. One name, however, is a stunning 90% below its high; find out which one in Jakir's article.

This is the last issue of Smart Investor for a couple of weeks; you’ll receive your next issue on Friday, January 7. Though the newsletter (and its author!) are taking some time off, Morningstar’s analysts and specialists aren’t. In the next two weeks, they’ll recap the year in stocks, funds, and exchange-traded funds; highlight stock ideas for 2022 and beyond; provide rebalancing ideas for 2022; and even suggest some financial New Year’s resolutions.

Happy holidays to you all, and cheers to a healthy and prosperous 2022!

--Susan Dziubinski

Editor's Picks

3 Diversification Strategies to Avoid in 2022 And what look to be the best. ARKK: An Object Lesson in How Not To Invest There's a massive gap between reported total returns and investors' actual results. The 10 Best Wide-Moat Stocks of 2021 Do any of this year's top performers have gas left in the tank for 2022? 5 Sustainability Themes to Expect in 2022 Sustainalytics founder discusses how climate puts sustainability on the agenda, as well as the rise of retail investors. A Year-End Bucket To-Do List These seven steps tackle a lot of jobs: refilling cash, rebalancing, tax planning, and charitable giving. The Real Reason to Index The key benefit is ease of use, not performance.

Portfolio Planning and Personal Finance With Christine Benz

Does the 4% Guideline Rest on a Flawed Assumption? In-retirement spending is often incredibly variable rather than static. Retiree Pitfalls to Avoid in a Lofty Market Here are some tips for navigating withdrawal rates, risk capacity, and charitable giving.

Mutual Funds and Exchange-Traded Funds

Ratings Upgrades and Downgrades Underscore the Importance of Team Stability Here are some highlights from November. Commodities: Inflation Hedge or Fool's Gold? The premium for inflation insurance may exceed the risk of inflation itself. Vanguard in 2021--and Beyond Morningstar's Vanguard specialist recaps the year that was and talks about what may be in 2022. Fidelity in 2021 and Beyond Morningstar's Fidelity specialist recaps the year and looks forward to 2022. 4 Sneaky-Good Sector Funds Recent performance doesn't tell the whole story for these funds. T. Rowe Price in 2021 and Beyond Morningstar's T. Rowe Price specialist reviews the fund flows, performance, and other news from 2021.


These 3 Network Security Stocks Get a Moat Upgrade We think their excess returns on invested capital will endure, thanks in part to switching costs. Where to Invest in Bonds for 2022 Corporate bonds should continue to outperform amid strong economic growth and rising interest rates. Meme Stocks: Where Are They Now? GameStop, AMC, and others started 2021 with huge gains and big headlines. But lately it's been rough going. Will Amazon Shares Deliver in 2022? Morningstar's analyst says Prime may be the secret sauce for e-commerce, but AWS and advertising will fuel growth. The Biggest IPOs of 2021 In a year with a record number of public debuts, these companies stand out. Kroger Is Positioned for Long-Term Success, but Now May Not Be the Time to Buy We believe current trading prices offer little opportunity among the pure-play grocers we cover. 9 Undervalued Stocks in Top-Performing Sectors Energy, tech, and real estate are leading the market. Here are some names with room to run in 2022.

Rekenthaler Report

Has Vanguard Lost Its Way? Today's company isn't entirely what Jack Bogle built.

Advisor Insights Say the Right Thing: How to Be a Better Ally Here are essential allyship phrases to know

The Long View Podcast

Bill Bengen: Revisiting Safe Withdrawal Rates The creator of the 4% guideline discusses the implications of higher inflation and elevated equity valuations for new retirees.

Sustainability Matters

The Morningstar Sustainable-Investing Framework Clear terminology leads to greater understanding of an evolving area. Does Your Company Face Water-Related Investment Risk? We can't survive without water. Here are some metrics for investors to look at.

The Short Answer

Are You Making Less Than You Did Last Year Because of Inflation? Your salary may be going up, but your purchasing power could be dropping.


Free Trading Apps Are Like 'Poison Wrapped in Chocolate' Dan Egan explains why inexpensive trading is better than free and how to avoid falling victim to fee-free platforms. The Impact of Race and Location on Savings Rates Examining how race, residency, and place of birth impact financial outcomes. Existing Trends in U.S. Fund Flows Hold in November Equity and fixed-income funds experience modest flows for the month.

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