Morningstar Runs the Numbers

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.

15 Vice president of research John Rekenthaler examined a study in The Wall Street Journal that found that more than 90% of all actively run U.S. diversified funds lagged their benchmarks over the trailing 15-year period. He found that the discouraging results were heavily influenced by two factors, however: survivorship bias and costs. Rekenthaler said the odds of beating the benchmark are greater among funds that survived the 15-year period and were in the lowest-cost quartile of their peer group.

"The advice for active management to improve its fortunes is simple. First, take more care when opening and closing funds. Throwing investments against the wall to see what sticks, and shutting down those funds that don't take hold, impresses nobody. That harms active management's brand. Second, less is more! The lower the expense hurdle, the less high that management must jump."

10 When investment managers begin laying off employees, investors should beware, says senior analyst Leo Acheson. Acheson looks at 10 investment managers that had broad layoffs amid record outflows from actively managed funds. In many cases the employees being let go were members of investment management teams.

20 Morningstar manager research analysts released their annual report on target-date funds, highlighting the major trends and developments in the target-date fund space. As well as providing a view of the landscape, the report answers more than 20 questions that are often asked by investors and investment consultants.

3411 While acknowledging that the high-profile passenger removal from flight 3411 was a "humbling experience," United Airlines said during its first-quarter earnings release that passenger revenue per available seat mile would rise between 12.65 and 12.90 cents during the second quarter of 2017, representing year-over-year growth of 1%-3%—in line with equity analyst Chris Higgins' expectations.

"This guidance aligns with our previous forecast that PRASM would turn positive by the second quarter of this year. Moreover, it confirms our view that the Flight 3411 incident, while undoubtedly a public relations disaster, will most likely not materially affect United's medium- to long-term financial and operational performance."

4.4%

The stock of

that the increased trading volatility with O'Reilly's stock could be due to social media sentiment algorithms incorrectly associating the unrelated names.

"There is a small probability that the two events are unrelated and the stock of O'Reilly Automotive rallied in the past two days because of normal market activity but this happening while the name O'Reilly was trending in Twitter and social media raises some questions about what is really happening in Wall Street. What are the risks from dumb algos taking over Wall Street?"

6% Consumer strategist R.J. Hottovy views Yum China as one of the most direct ways for investors to play the Chinese consumer's increased spending power. He believes investors are underestimating the firm's growth potential.

"We think the firm's opportunities for market share and unit expansion in the highly fragmented Chinese restaurant market are being overlooked. In this market, the top five chains represent roughly 6% of China's approximately 5 million restaurants (based on data from IBISWorld), as well as future opportunities for conventional franchising."

10 We highlight the 10 cheapest stocks in the Morningstar US Dividend Growth Index. Dividend investing is in vogue, and strategies focused on dividend growers have gained investor attention lately. However, we think it's important for investors to have reasonable expectations for dividend growth strategies.

"Rather than homing in on the market's juiciest yields, the Dividend Growth index looks for companies whose cash flows have translated into a rising payout. Companies that are focused on growing dividends tend to be higher quality, cash-rich businesses that hold up well in down markets, participate in up markets, and are capable of excess returns over a full market cycle."

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