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Picks from Morningstar's Senior Researchers

Morningstar's Russ Kinnel, Ben Johnson, and Elizabeth Collins discuss their favorite investment ideas among mutual funds, ETFs, and stocks.

Mentioned: , , , , , , , , , held its annual Individual Investor Conference on April 2. The agenda featured discussions of a variety of key topics for investors: the direction of the economy, planning for a successful retirement, and cutting the tax bill on your portfolio. We'll be replaying these sessions on this week, so stay tuned.

The conference also featured a whole session's worth of investment ideas--stock, fund, and exchange-traded fund picks from some of Morningstar's top researchers. Here's a compendium of the ideas that Russ Kinnel, director of manager research; Ben Johnson, director of global ETF research; and Elizabeth Collins, director of equity research for North America, shared during the conference session.

Best Ideas For Dividend-Seekers
 Vanguard Dividend Growth (VDIGX) (Kinnel): Kinnel called this Gold-rated stalwart “the definition of a good core holding,” praising its ultralow costs as well as its sensible strategy. Whereas some dividend-focused funds focus on yields that are high in absolute terms, this actively managed fund focuses on dividend-paying companies that have grown their dividend yields over time. That dividend growth focus keeps it out of highly leveraged companies, so the fund held up relatively well during the financial crisis.

 Vanguard Dividend Appreciation ETF (VIG) (Johnson): Like the aforementioned fund, this ETF focuses on companies that have historically grown their dividends; its yield is not high. Johnson points out that such funds tend to be less volatile and higher-quality than those that prioritize companies with higher yields. This ETF (also available as a traditional index fund) has long been a Morningstar favorite, with a low expense ratio of just 0.10%.

 Schwab US Dividend Equity ETF (SCHD) (Johnson): Johnson puts this fund in the same general camp as Vanguard Dividend Appreciation; it focuses on durable, high-quality companies with dividend yields, but it doesn't reach into distressed, deep-value territory. It's even cheaper than the Vanguard fund, with a 0.07% expense ratio.

 Vanguard High Dividend Yield ETF (VYM) (Johnson): In contrast with the three aforementioned funds, this one does prioritize yield; its SEC yield recently topped 3%. But Johnson likes that the index it tracks doesn't forsake quality in search of income; it's light on distressed stocks with big yields, and a mega-cap tilt keeps it away from more speculative names.

Best Ideas For Bargain-Hunters
 Artisan Value Investor (ARTLX) (Kinnel): Although the fund has been on fire recently thanks to its bet on the resurgent energy and basic materials sectors, Kinnel acknowledges that its results over the past several years have been underwhelming. But he likes the management team in place on this fund, and notes that they've compiled strong track records at their other charges. ( Artisan Mid Cap Value Investor (ARTQX) has also slumped recently, but its long-term results remain exceptional.) Kinnel also likes the idea of buying funds from proven managers when their holdings are in a trough. “I like these sort of funds that have slumped a little bit, have a lot of good characteristics, good managers, good strategies still working for them,” he said. 

 Artisan Global Value (ARTGX) (Kinnel): Kinnel points to this fund, which recently reopened to new investors, as a great example of a focused, value-oriented strategy in action. David Samra and Dan O'Keefe, who worked at Harris Associates (advisor to the Oakmark family of funds) before joining Artisan, are veteran managers who look to buy high-quality companies on the cheap. Their quality emphasis kept the fund away from the highly leveraged companies, especially in the financial sector, that performed worst during the financial crisis. Kinnel notes that stewardship is another attraction, pointing to the managers' heavy ownership of their own fund as well as the fact that the fund was previously closed to preserve the managers' flexibility.

 Stifel Financial (SF) (Collins): Collins says that investors in this midmarket investment bank (market cap: $2 billion) should brace themselves for some ugliness on the earnings front, as volatile markets should push down the potential for profitable merger activity. She also points out that it's a no-moat company. But she thinks that investors with longer time horizons buying in at today's valuations will be rewarded, as Stifel is a well-capitalized company that will either be able to grow its balance sheet, repurchase shares, or acquire other companies.

 Ralph Lauren (RL) (Collins): The shares of this narrow-moat luxury goods maker have encountered some turbulence, owing to currency swings as well as reduced tourism traffic in some of the firm's mega-stores. But Collins points to the firm's strong brand image and relationships with high-end department stores, which enables it to charge higher prices for goods that are essentially commodities. She also believes that Ralph Lauren should, over time, be able to increase its penetration among consumers in emerging markets.

 Micron Technology (MU) (Collins): Collins acknowledges that this memory-chip maker operates in a commodity industry; memory-chip prices have been steadily declining as technology has advanced and oversupply has weighed on the market. Thus, the company earns a no-moat rating. But Collins says that those concerns--and then some--are already factored into the current share price; she believes Micron shares are trading well below their intrinsic value.

 Fiat Chrysler (FCAU) (Collins): Like Micron, Fiat Chrysler is a no-moat company that Morningstar's analysts think is good and cheap today. Collins points out that the seventh-largest automaker also has a runway for growth; while it was late getting into the Chinese market, she points out that the firm's Jeep brand is likely to do well there.

Best Ideas for Core Equity Exposure
 Vanguard Total Stock Market ETF (VTI),  iShares Core S&P Total US Stock Market (ITOT),  Schwab US Broad Market ETF (SCHB) (Johnson): Johnson points to these three total U.S. market trackers as evidence that U.S. ETF investors are currently “spoiled” with so many terrific low-cost options. While each fund tracks a different benchmark, the net effect is the same: one-stop broad U.S. equity exposure in a single, low-cost package. Johnson notes that the Schwab and iShares funds currently have a slight cost edge, at just 0.03% versus 0.05% for the Vanguard fund, but believes that all are worthy options.

 Vanguard Total Intl Stock Index (VTIAX) (Kinnel): While most of Kinnel's picks are actively managed, he notes that indexing can be a fine way to build a portfolio, too. He points out that this fund, because it tracks an index with roughly 20% in emerging markets, has lagged its foreign large-blend peer group over the past few years; its five-year returns land in that peer group's bottom quartile. But the fund's heavy emerging-markets weighting won't always be such a hindrance, and Kinnel points out that its 12-basis-point expense ratio is a gift that will keep on giving.

 BBH Core Select (BBTEX) (Kinnel): With just about 30 stocks, this fund is obviously not as broadly diversified as the aforementioned total-market funds. But Kinnel believes that this fund, which recently reopened to new investors amid heavy redemptions and lackluster results over the past three years, is an interesting contrarian play. Management focuses on buying companies with sustainable competitive advantages when they're depressed and then hangs on; long-term results under lead manager Tim Hartch, on board here for more than 10 years, have been outstanding.

 Goldman Sachs ActiveBeta US LgCp Eq ETF (GSLC) (Johnson): So-called strategic beta ETFs have been garnering a lot of buzz--and marketing dollars. But Johnson views this fund as among the best funds launched as part of that trend. He points out that it takes muted bets on a variety of different factors associated with long-term outperformance, such as valuation and profitability, but doesn't go too far out on a limb for any one single factor. For that reason, he doesn't expect performance to diverge significantly from the broad U.S. large cap market. Expenses, at just 0.09%, mean that its factor bets won't have to hit the jackpot for it to stay competitive with market-cap-weighted index funds.

Best Ideas for Bond Investors
 Vanguard Total Bond Market ETF (BND),  iShares Core US Aggregate Bond (AGG) (Johnson): While Morningstar also likes active management in the core fixed-income space (Kinnel mentioned  Dodge & Cox Income (DODIX) and  Metropolitan West Total Return Bond (MWTRX) ), Johnson cited these core index funds as easy, low-cost portfolio diversifiers. Although they track slightly different indexes, both emphasize high-quality bonds: Treasuries, mortgage-backed bonds, and high-quality corporates. That high-quality focus means that their performance often moves in the opposite direction of the stock market.

Best Ideas for Growth Investors
 Wasatch Core Growth (WGROX) (Kinnel): Whereas several of Kinnel's picks are contrarian ideas, he acknowledges that this small-growth fund has been at the top of its game recently, with three- and five-year returns that land in the category's top 20%. Thus, investors buying in today should be prepared for some mean-reversion. Kinnel likes its experienced manager, however, as well as a strategy that keeps the fund on the tamer side of its usually aggressive peer group. Kinnel also points to Wasatch's history of excellence within the small-cap space as another feather in its cap.

 Vertex Pharmaceuticals (VRTX) (Collins): Biotechnology firms have hit the skids so far in 2016, and Vertex is no exception; its shares have dropped by nearly a third since Jan. 1. But Collins believes that the firm has a long runway for growth, thanks to its effective therapies in the cystic fibrosis market and the premium prices that those drugs command. Largely because of its leadership in the cystic fibrosis market, and the fact that it has few rivals in that area, the stock earns a narrow-moat rating currently.

 BioMarin Pharmaceutical (BMRN) (Collins): Another beaten-down biotech name, BioMarin, has its footprint in the realm of genetic-disease therapies. Strategist Karen Andersen notes that these therapies may only save a few thousand lives annually, because they treat rare conditions. But these therapies can command very high price tags and the narrowness of their markets keeps competitors out, earning BioMarin a narrow-moat rating currently. 

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.