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 Jan. 20.
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.
The consumer price index rose 0.3% in December, the Labor Department said Wednesday. So-called core CPI, which excluding more volatile food and energy items, rose 0.2%. While those readings were in line with economists' forecasts, director of economic analysis Bob Johnson believes investors are underestimating the potential for inflation.
“The headline number, that's the all-in number, if you will, came in at 0.3% month to month. That annualizes to 3.6%, and that's a pretty nasty number. Yes, people were expecting a relatively high number based on gasoline prices and a few things that were known in advance. Nevertheless, that's a pretty high number for a headline number, especially if you remember that the new Social Security checks with the new amounts went out and they had 0.3% for the whole year in there. And so here we got inflation of that much in a single month.”
Netflix (NFLX) ended 2016 on a high note with stronger international subscriber growth (5.12 million net adds, versus guidance of 3.75 million) and U.S. growth (1.93 million net adds, versus guidance of 1.45 million). Despite the impressive fourth quarter and better-than-expected guidance for next quarter, the most important information from the conference call may have been management's admission that the operating margin will improve modestly on a yearly basis, said equity analyst Neil Macker.
“Our long-term model for the company still projects that the operating margin for the international segment will improve slowly but will remain well below that of the U.S. segment over the next five years... With shares trading well above our new fair value estimate, we advise investors to steer clear of this very high uncertainty company.”
The average long-short equity fund gained 2.3% in 2016. Manager research analyst Josh Charlson explains that funds that engage in hedging, or shorting, as long-short equity funds do, would be expected to lag long-only funds in a year when the S&P 500 rose around 12%. But that's not the whole story.
“The averages mask a wide range of returns in the category. Long-short equity returns ranged from 25% at the top end to negative 17.6% at the bottom--a huge spread. Part of the disparity results from the fact that betas, or market exposures, can range widely in the category, and on top of that many managers have the flexibility to move that exposure around actively during the year.”
1.69 degrees Fahrenheit
2016 was the hottest year since the global temperature records began being kept in 1880, Forbes reported.
“According to NOAA's National Centers for Environmental Information, 2016 was 1.69º F (0.94º C) above the 20th century average, breaking the previous record held by 2015, which in turn broke the previous record held by 2014. All told, the annual global temperature record has been broken five times – in 2005, 2010, 2014, 2015 and now 2016 – since the dawn of the 21st century.”
With more than $5 trillion in assets under management at the end of 2016, BlackRock (BLK) is the largest asset manager in the world. It continues to generating organic growth through its iShares platform, which is the leading domestic and global provider of exchange-traded funds, riding a secular trend toward passively managed products that began more than two decades ago. We continue to be impressed by the company's breadth, and we think it has a wide economic moat.
“BlackRock, in our view, has a wide economic moat around its operations. The size and scale of its operations, the strength of its brands, and the diversity of its AUM by asset class, distribution channel, and geographic reach provide the firm with a leg up over competitors. BlackRock is the largest asset manager in the world, and its product mix is fairly diverse, with 51% of managed assets in equity strategies, 31% in fixed income, 8% in multi-asset class, 8% in money market funds, and 2% in alternatives at the end of 2016.”
Most Popular Articles, Videos, and Securities
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Schwab US Dividend Equity ETF
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Vanguard Total International Bond ETF
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