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Financial Advice

What Are Morningstar Analysts Buying?

As investors themselves, they’re looking for opportunities in a bear market.

The information provided below is for educational purposes only and should not be taken as Morningstar’s research team or its analysts providing you with personalized investment advice. References to specific securities should not be considered an offer to purchase or sell that investment. Opinions and analysis provided below are as of the date of this communication and subject to change. Investors must exercise their own independent judgement when reviewing investment products and strategies in light of their own objectives, experience, taxation status, and financial position. Please consult with your own financial professional before making investment decisions and see the Disclosures below for more important information.

Our research teams evaluate investments using a long-term view to assess quality in stocks and funds. Read how they’ve put their expertise to use in their personal investment decisions [1] as they navigate the recent market volatility.

“I was sitting on a sizable cash drag in my portfolio as I thought valuations were rich back in January. Slowly, I’ve been deploying capital and allocating any savings I can to the stocks of what I think are wide-moat companies trading at the deepest discounts, and overwhelmingly with strong balance sheets. Cash is a terrible investment, but it’s an option that I can choose to exercise on American businesses. I’ve relied on some modest diversification (think 20 stocks) as a hedge in areas where I lack expertise, as I use our analysts’ recommendations and weight the deepest discounts to fair value more heavily in the portfolio. I also think about the business model--stocks like CRM have subscription-type revenue that I think are more resilient in a time like this. P.S. If they go down, I’d buy more and will be happy to do so.”

Erin Lash, Director of Equity Research, Consumer: "I've been selectively putting some of the cash we had built up to use, with a bent toward 'moaty' names. One name that I have been building a position in is wide-moat Starbucks SBUX. As our strategist, R.J. Hottovy, has noted, we believe Starbucks is poised to withstand the current storm given its technology investments and solid licensing partners. Trading at a price/fair value of less than 0.6, this seemed a unique opportunity to buy a high-quality restaurant operator."

Dan Rohr, Head of Global Equity Research: "I've been putting excess cash to work in MOAT [2], an ETF comprised of the cheapest wide-moat names that Morningstar analysts cover. It's done well for me over the past several years and, besides, I like to eat our own cooking. My wife and I are also looking at refinancing our mortgage."

Jeffrey Stafford, Director of Equity Research, North America: "With the median stock in our equity coverage universe now trading meaningfully below fair value, I'll be looking to use some cash I have sitting on the sidelines to buy stocks. I'm prioritizing names that are not only undervalued, but also have economic moats and strong balance sheets. A couple companies that fit that description include Ecolab ECL, a wide-moat provider of cleaning and sanitation products, and Comcast CMCSA, another wide-moat company trading at a discount that I expect will be relatively insulated from virus and recession concerns."

Dave Whiston, Equity Analyst, Autos: "Disney DIS with all its media content is very interesting. I have put money into my son's 529 college savings plan. I think in a mass selloff, when you have a long time horizon, like a college fund for a young kid is, you should consider increasing your funding."

“I’ve gradually been averaging down by shifting some of my cash and bond-fund holdings into the stock market and think I will continue to do so over the coming months. My goal is to own more (or at least as much) on the way up than I did on the way down. I’m attempting to accomplish that mostly by rebalancing, and I’m certainly not de-risking. I’m prepared to ride it out.

I’ve added more to emerging markets than the U.S., specifically iShares Core MSCI Emerging Markets ETF IEMG, given the former’s significantly more attractive valuations. In the U.S., I’ve added modestly to Berkshire Hathaway BRK.B, given the company’s large cash stake and history of seeking to take advantage of market drawdowns. I’ve also added to Utilities like American Electric Power AEP and Duke Energy DUK, which have fallen nearly as much as the S&P 500 despite what I believe are their stable business fundamentals and high dividend yields (which currently exceed bond yields in many cases).”

Bobby Blue, Manager Research Analyst, Multi-Asset and Alternative Strategies: "In late February, I bought Matthews China MCHFX, seeing an opportunity to establish an allocation to that market at a good valuation. I thought it was prudent to have active management that understands the local political/economic structure, which this team has demonstrated over their more than 20 years investing in the region. More recently, I've been adding to BlackRock Total Factor BSTIX, which provides an uncorrelated return stream from the rest of my portfolio. As it grows as a percentage of my portfolio (both from its growth and the shrinking of other allocations), I may look to rebalance from it into equity positions, given my long time horizon and ability to tolerate risk."

Daniel Culloton, Manager Research Director, Equity Strategies: "In my 401(k), I shifted some money I had been sequestering in cash over the last few years due to rich prevailing valuations to managers whom I believe will deploy that capital thoughtfully and opportunistically in a bear market. Those included Bill Nygren at Oakmark Select OAKLX, the PRIMECAP team at PRIMECAP Odyssey Aggressive Growth POAGX, and Dodge & Cox International Stock DODFX.

“My decision was not a matter of choosing to wager on value or growth or the portfolios’ underlying holdings, but of trust borne of long exposure to these teams and their long-term focused, bottom-up approaches that have enabled them to take advantage of crises in the past. I also sprinkled some money across small-cap and emerging-markets index funds for diversification purposes and put some money in DFA International Small Company DFISX, because my portfolio had lacked exposure to that area and I had long waited for an opportunistic time to incorporate it.”

Russ Kinnel, Manager Research Director, Ratings, North America: "I raised my 401(k) contribution rate 2 percentage points, so at month end I'll be adding to my top-five holdings--PIMCO Total Return PTTAX, PRIMECAP Odyssey Aggressive Growth POAGX, American Funds New World NEWFX, American Funds Washington Mutual AWSHX, and Royce Special Equity RYSEX."

Alec Lucas, Manager Research Senior Analyst, Equity Strategies: "I bought Vanguard Dividend Growth VDIGX. I have owned Vanguard Dividend Growth in a taxable account for years but have put Roth IRA money into it on three separate occasions during this downturn. My rationale is that I think it is a great long-term holding and its resiliency makes me less concerned about perfectly timing the bottom.

I also put money into American Funds New Perspective ANWPX, Alger Small Cap Focus AOFAX, and PRIMECAP Odyssey Growth POGRX on behalf of my children. New Perspective is a diversified global fund that has a long record of compounding capital through thick and thin; I feel the Alger fund is a focused portfolio run by an experienced manager who knows her holdings inside and out and is mindful of business fundamentals and downside risk; finally, the PRIMECAP fund is backed by a firm whose airline investments I think should give this fund some very good rebound potential.”

Brian Moriarty, Manager Research Associate Director, Fixed Income Strategies: "I slightly rebalanced my 401(k). My allocation to PIMCO Total Return PTTAX had moved 3 percentage points above its 10% target weight, and on a relative value basis I thought equities were attractive. So, I reallocated that 3%, splitting it evenly between Vanguard Institutional Index VINIX, PRIMECAP Odyssey Aggressive Growth POAGX, and American Funds Washington Mutual AWSHX."


[1] Morningstar may provide the product issuer (or its related entities) mentioned in this commentary with services or products for a fee and on an arms' length basis including software products and licenses, research and consulting services, data services, licenses to republish our ratings and research in their promotional material, event sponsorship and website advertising. Some securities mentioned herein are covered by Morningstar Research Services. However, no material interests are held by Morningstar, the analyst or their immediate family and analysts receive no compensation or material benefits from product issuers or third parties in connection with this commentary. Additional information about our code of ethics and integrity policies can be found here.

[2] Van Eck seeks to replicate an index created and maintained by Morningstar Inc.’s index group in MOAT. Given Van Eck's use of a Morningstar Index as the fund’s tracking index, Van Eck and Morningstar, Inc. have entered into a license agreement. Morningstar Research Services (by whom Dan is employed) is separate and apart from the Morningstar, Inc. Index group.

Disclosures: The information contained herein is for informational purposes only and has no regard to the specific investment objectives, financial situation or needs of any specific recipient. This commentary is not intended to provide investment advice to any specific investor. Therefore, the investments and strategies discussed herein may not be suitable for all investors: recipients must exercise their own independent judgment as to the suitability of such investments and strategies in the light of their own investment objectives, experience, taxation status and financial position. This information should not be the only source consulted in making investment decisions. We encourage investors to work with their own financial and tax professional(s) to determine the best course of action for them based on their own unique facts and circumstances. Opinions expressed are as of date this commentary was published; such opinions are subject to change without notice. Morningstar and its subsidiaries shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer to purchase or sell that specific investment. The performance data discussed represents past performance, which does not guarantee future results. It is important to note that investments in securities (e.g., mutual funds, exchange-traded funds, common stocks) involve risk and will not always be profitable. Neither diversification nor asset allocation ensure a profit or guarantee against a loss. There can be no assurance that any financial strategy will be successful. This commentary contains certain forward-looking statements. We use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. The information presented are statements of opinions; they are not statements of fact.

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