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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 March 10.

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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.

The U.S. economy added 235,000 jobs in February, signaling steady growth and increasing the probability that the Federal Reserve will raise interest rates next week. Director of economic analysis Bob Johnson thinks that while the report was good, it also raises a few concerns.

"Digging down by sectors and thinking about seasonality, the report was good, but certainly not great. We look at the year-over-year number, where we roll in the hours and the wages as well, and total wage growth was about 4.1% on a three-month moving-average basis. It was probably about 4.3% a year ago, so really not that big a difference. But, when we go down a little bit further and adjust the numbers for the inflation, that's where we run into problems."

Director of manager research Russ Kinnel looked at the 10-year maximum drawdowns of eight equity funds in FundInvestor's Morningstar 500 to find some (relatively) low-risk equity funds. Kinnel points out that a few caveats apply, however. For one, all equity funds have risk. In addition, no two bear markets are alike, so the "winners" of the last bear market as measured by maximum drawdown might not be the same during the next one.

1.2 billion
1.2 billion barrels of oil were discovered this week in Alaska's North Slope, which was previously viewed as an aging oil basin, CNN reported

"Spanish oil giant Repsol (REPYY) and its privately held U.S. partner Armstrong Energy announced the find on Thursday, predicting production could begin as soon as 2021 and lead to as much as 120,000 barrels of output per day."

Kinnel also discussed some sizable mutual funds that have negative ratings. All three of these funds' have asset bases in the billions, but we think they're ones to avoid.

Senior analyst Leo Acheson published the results of a study that compared the performance time periods used by the top 30 active management shops when determining portfolio manager bonuses. He found that of the 30, only four explicitly consider returns beyond five years.

"We believe that shareholders of actively managed funds must maintain long-term investment horizons to reap the rewards of active management. Likewise, investment firms should compensate their managers based on long-term performance."

These three firms have missed out on the healthcare sector's strong performance this year, but we think their underperformance presents investors with a great opportunity to pick up high-quality firms with competitive advantages for a low price

"Not only are these stocks undervalued, in our view, they have economic moat ratings of wide (we think they have advantages that will fend off competitors for at least 20 years). They also have fair value uncertainty ratings of medium, which means we think we can more tightly bound their fair value, because we can estimate the stock's future cash flows with a greater degree of confidence."

Most Popular Articles, Videos, and Securities

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