Weekly Wrap: Best International Funds, Dividend-Stock Deep Dive, and Why Diversification Is Getting Harder
Plus, our latest insights into the Russia/Ukraine conflict and the market.
As the war in Ukraine continues, our markets team and analysts have been working overtime to put the extraordinary events into context for investors. They’ve isolated funds with heavy weightings in Russian debt and those holding the most assets in Russian stocks. They’ve talked with top emerging-markets fund managers about their outlooks. They’ve examined why renewal energy stocks have surged along with oil prices.
Morningstar U.S. market strategist Dave Sekera did his part, isolating 15 undervalued growth stocks amid the continued market volatility. What are Dave’s expectations for the market near-term?
“Broadly, it is notoriously hard to predict how geopolitical events will evolve,” he reminds. “We expect stocks will remain volatile in the short term with brief sell-offs if further escalation arises, or a snap-back rally if Russia ceases further additional military escalation.”
To stay on top of the ever-changing conditions and what they mean for investors, bookmark and frequently visit our Special Report.
As 2022 kicked off, many market experts forecast a slowdown in U.S. stocks over the coming decade. In fact, most expect better returns from non-U.S. companies in the next 10 years, given their relative underperformance: At 2021's end, the average U.S. large-blend fund had trounced the average foreign large-blend fund by more than 10 full percentage points annually over the trailing three-year period.
The Our Picks column this week takes a look at what Morningstar considers to be the best international-stock funds and ETFs. About two dozen funds have share classes that earn our top Morningstar Analyst Rating of Gold. The list includes both passive and active strategies, value and growth approaches, larger companies and smaller fare, and developed and emerging markets.
How much international exposure does your portfolio need? That of course depends on your life stage and investment personality. But if you’re looking for a starting point, Morningstar’s Lifetime Allocation indexes include non-U.S. stock positions that range from 6% to 42%.
I didn’t suggest that investors consider international funds for their diversification value. That wasn’t an oversight--it was intentional. As my colleague Amy Arnott pointed out this week in Why Diversifying Your Portfolio Is Getting Harder, correlations between U.S. and non-U.S. stocks have increased quite a bit during the past decade--meaning that returns for these two asset classes have moved largely in the same direction for much of the time.
Indeed, Amy and colleagues Christine Benz and Emory Zink argue in their new diversification landscape paper that diversification as a theory may not be broken entirely, but there is evidence that correlations between stocks and bonds may rise during an extended period of rising interest rates and/or inflation. We’ll be unpacking more of this research in the coming weeks on Morningstar.com and talking with the team about their findings and key takeaways for investors. So don’t toss aside the concept of diversification--at least not yet.
Shares of no-moat Target (TGT) jumped nearly 10% midweek after the company reported good sales growth for the fourth quarter and forecast low- to mid-single-digit revenue growth and low-single-digit operating income growth for fiscal 2022. Morningstar analyst Zain Akbari noted that we’ll be raising our fair value estimate of the stock by about 10% as a result.
“The uptick is driven by a more optimistic outlook for Target’s near- and long-term top-line prospects, considering its burgeoning omnichannel strength, and the rescission of our prior expectation that the U.S. corporate tax rate would rise this year,” explained Zain. The retailer still hasn’t carved out an economic moat, though, because of the lack of switching costs and undifferentiated product assortment. Despite the fair value boost, shares look pricey as of this writing.
In our latest episode of Dividend-Stock Deep Dive, host David Harrell talks with Morningstar’s director of equity research for energy and utilities Dave Meats about dividend opportunities in the energy sector. As our colleague Lauren Solberg noted last month, the energy sector’s dividends are growing faster than other sectors in the U.S. market. And in the new episode of Dividend-Stock Deep Dive, Dave explains why and discusses the emergence of variable dividend policies among exploration and production companies. He also shares a few of his favorite names in the sector--perhaps providing some new ideas for a dividend-seeker’s watchlist.
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With Russian bonds and the ruble collapsing, these emerging-markets funds had big weights ahead of the invasion.
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Emerging-Markets Stock Fund Managers Face Tough Choices With Ukraine War
Here’s what managers of Morningstar Medalist funds are saying about the outlook for Russian stocks.
How Have Low-Volatility Funds Performed in 2022?
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The Best International Stock Funds for 2022
These international mutual funds and ETFs all earn Morningstar Analyst Ratings of Gold.
More Market Turmoil Doesn't Deter ETF Investors in February
Exchange-traded funds hauled in $69.5 billion in a turbulent February.
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Manager changes at Vanguard, Oakmark, and Fidelity in perspective.
Is ARK Innovation a Growth Fund or a Value Fund?
Cathie Wood says ARKK is a “deep value” fund now. But Morningstar’s data shows it's still a growth fund, just with stocks that are struggling.
Which Funds Have the Biggest Russian Stock Holdings?
Investors in these funds had the most exposure to Russia heading into the war.
Dividend-Stock Deep Dive: Energy Ideas
'It's pretty clear that the market wants to see this industry return capital to shareholders.'
Why the Outlook for Wide-Moat Stocks Remains Bright
With valuations coming down, wide-moat stocks may be in a better position for a period of rising rates and inflation.
Attractive Yield Adds to 3M Stock's Appeal Today
Litigation fears are overblown for this dividend-paying conglomerate, says Morningstar's analyst.
War May Delay Progress on Emissions Cuts, Chill Interest in Sustainable Investing
Even as U.N. panel finds globe is warming fast, oil prices climb.
The World Is Waking Up to Autocracy Risk Thanks to Russia, China
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How MeToo Forced Companies to See the Business Risks of Sexual Misconduct
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Sustainable Funds Have Lower Russia Exposure
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Special Report: How Women Are Breaking the Bias in 2022
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What Is a Market Correction? And What Happens Next?
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Are You Paying More in Fees Than Others for Your Retirement Investments?
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Clark Howard: Financial Well-Being Starts With Being a Smart Consumer
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Why Economists Failed to Predict Inflation’s Return
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Morningstar.com does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.