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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 Nov 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 "small-cap effect," first written about by Rolf Banz in 1981, is the idea that small caps will outperform the broad market on a risk-adjusted basis. Since then, however, the theory that small caps should produce superior risk-adjusted returns has been challenged many times, and in practice, it simply hasn't panned out. More recently, however, AQR researchers have identified that homing in on quality small-cap stocks (those with solid, consistent profits; clean balance sheets; and responsible investment policies), or inversely, giving the boot to "junk" stocks, brings the size effect back to life. In this video, director of global exchange-traded fund research Ben Johnson discusses two highly rated ETFs that can help investors harness the size premium. 

Morningstar manager research analysts compile a list of up-and-coming or under-the-radar investment strategies that they think might be worthy of full coverage someday. They added eight strategies to the list in the third quarter; here's a look at five of them

14%, 62%
 Snap (SNAP) reported third-quarter results below expectations. Equity analyst Ali Mogharabi says the firm's disappointing user count supports our view that Snap lacks a network effect moat source. The impact of the ongoing sluggishness in user growth is apparent in revenue generated per user, as that figure nudged up only slightly during the quarter, Mogharabi said. 

"Snap's total revenue grew 14% and 62% sequentially and year-over-year, respectively, to $208 million. While those growth figures seem impressive, in our view, they are disappointing for an early stage growth firm. Snap's daily active user count, or DAU, grew only 2% sequentially, or 16% year over year, as the difficulties that Snap faces when competing against Facebook are ongoing."

It's been a year since we first incorporated exchange-traded funds into our Analyst Rating framework. Though we've ramped up coverage dramatically, there have been only a few ratings changes since we first began rating ETFs--nine in total. In this article, we take a closer look at the upgrades and downgrades. 

When Disney announced its earnings Thursday, the wide-moat firm also created a stir with the news of a new Star Wars trilogy.

"The new trilogy will be separate from the Skywalker-themed episodic saga, the company said, and will introduce new characters "from a corner of the galaxy that 'Star Wars' lore has never before explored."

In October, PIMCO implemented a round of fee changes, including a sizable hike at  PIMCO Income (PIMIX)--raising the fund's fees by 5 basis points for all share classes, except the fund's D class, which will see an 11-basis-point increase. Senior analyst Eric Jacobson and head of global manager research Jeff Ptak don't think the fee cuts are justified considering the fund's asset growth.

"The fee increase at PIMCO Income is odd considering that the fund is already a behemoth ($99 billion as of Sept. 30, 2017) and has been growing like gangbusters. (Assets in the overall strategy across PIMCO vehicles had surged an astounding 75% to $177 billion for the year to date through September 2017.) If PIMCO had done nothing, it still would have hauled in tens of millions in additional fees (that is, by levying the same percentage expense ratio on its larger asset base)."

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