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Investing Specialists

Morningstar Runs the Numbers

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Dec. 2.

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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.

Morningstar consumer strategist R.J. Hottovy says he plans to maintain his $63 fair value estimate for Starbucks after the company announced that Howard Schultz plans to step down as CEO in April. Schultz plans to transition to executive chairman and hand the CEO reins to president and COO Kevin Johnson next spring.

"While Schultz's vision and attention to customer experience have been key reasons that Starbucks has developed one of the widest-moat and most reliable growth stories in our global consumer coverage universe, our Exemplary stewardship rating--which remains in place following the announcement--is founded on the fact that we view Starbucks to have one of the deepest benches in the consumer sector. As such, we expect that the company's key growth objectives will remain on track in the years to come."

David Blanchett, head of retirement research for Morningstar Investment Management, says the optimal allocation to company stock, from a "pure research perspective," is zero. This strict limit might be difficult for some investors, however. Blanchett says 10% of total portfolio assets is a reasonable upper limit for company-stock ownership. Christine Benz offers some guidance on what to do if the percentage of company stock in your 401(k) exceeds this. 

"Given that so many employees receive company stock through matching contributions in their 401(k)s, it's a best practice for such investors to periodically liquidate those holdings and deploy the cash into better-diversified positions within their plans. Thanks to the Pension Protection Act of 2006, participants who have logged three years of service under the plan can transfer the value of the company stock into better-diversified options within the plan."

1 Percentage Point at Worst; Above 2 Percentage Points at Best
Morningstar's vice president of research, John Rekenthaler, calculated the average excess return over rolling 10-year periods for all surviving funds in the three large-cap categories and found the opportunity set for active managers has shrunk over time

"Until recent years, most U.S. large-company stock funds beat the indexes, before expenses. From the beginning of the chart (the 10-year period that ran from 1996 through 2006) through its middle, the three lines averaged one percentage point at worst, and above two points at best… However, once the New Era crash disappeared from the record, the bulge shrunk. It's now modestly positive for large-value funds and nonexistent for the other two categories. Matching the indexes before expenses means trailing them after expenses. Worse, the trend shows no hint of changing."

The U.S. economy added 178,000 jobs last month, and the jobless rate hit a nine-year low of 4.6%. Morningstar director of economic analysis Bob Johnson thinks the headline number is best considered in the context of other data, however.

"In this particular report, what happened is that about 200,000 or so people left the workforce and we added a fair number of people but actually the reason the number declined so much—a bigger impact on the number—was the number of people that left the workforce. So it's a little bit of an artificial number, but nevertheless, at 4.6%, it's a low unemployment rate; it's getting pretty close to what we all would consider full employment, and certainly raises the issue: Is employment growth slowing because there isn't enough workers, or because there isn't enough work? It's a very interesting question."

15,000 Years
The bones of a woolly mammoth discovered in a Michigan farmer's field in 2015 may provide evidence that humans inhabited the North American continent earlier than previously thought, according to Nova Next. (The mammoth was dubbed the Bristle mammoth, after the farmer.) 

"Renowned mammoth expert Daniel Fisher of the University of Michigan has recently presented fresh evidence that Ice Age hunters were involved in the [Bristle] mammoth kill. Together with a preliminary radiocarbon date, that may put the find among the earliest convincing signs of humans in the Americas… If the age is confirmed by further tests, the Bristle mammoth could be as much as 15,000 years old."

U.S. light vehicle sales in November rose 3.6% year over year to about 1.38 million; sales in the period got help from incentive spending as well as two extra selling days compared with November 2015. Morningstar equity strategist David Whiston expects the momentum to continue into December

"We expect December will be a good month as automakers clear out remaining 2016 model year inventory and heavily advertise holiday sales programs. We still think that due to rising supply of used vehicles coming from the off-lease market and already high penetration of leasing that the industry is done growing on a full-year basis for this cycle. We do not think a recession is imminent and we remain upbeat on U.S. auto demand because even if sales fall all the way to 16 million from the mid-17 million range they are at now, that is still a very healthy level for profitability across the supply chain." 

In a study released Nov. 28, Morningstar found women are vastly outnumbered by men in fund-management ranks not only in absolute terms but also relative to other professional industries, including law and medicine. 

“In this latest look at fund managers by gender, we harnessed Morningstar's global database of mutual funds and their managers to consider fund managers across 56 countries, and the trends we saw in the U.S., Spain, and Hong Kong are repeated globally: Women are not often tapped to manage mutual funds, regardless of geography. Globally, about one in five fund managers is a woman, and that management rate is largely unchanged since 2008. These numbers suggest that the fund industry as a whole is not becoming more gender-inclusive.”

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