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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. 17.

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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.

This was our annual Portfolio Makeover Week on Director of personal finance Christine Benz provided suggestions and strategies for helping five real investors improve their portfolios. Each article contains the "before" and "after" portfolios of actual investors at various life stages and asset levels, as well as Benz's suggestions for asset allocation, asset location, and in-retirement withdrawal rates, and more. 

Senior analyst Barbara Noverini said she expects to cut  General Electric's (GE) fair value estimate to about $26 from $29, chiefly due to reduced expectations for midcycle margins after the firm's long-anticipated investor update, in which new CEO John Flannery reset expectations to reflect the harsh realities of what we believe will likely be a multiyear turnaround. But Noverini wonders if the market is too harshly punishing GE shares.  

"With the dividend cut by half to $0.48 per share, significant restructuring planned for the power segment, and no imminent breakup of the industrial conglomerate on the table, we believe maximum pessimism has been reached. Following today’s sharp sell-off, GE shares are trading at a level that implies that the portfolio is incapable of returning to meaningful earnings growth; however, we do not believe this reflects the company’s longer-term potential, considering that 70% of GE’s revenue and 85% of its earnings come from businesses that dominate their markets."

10.6 million
Though most people think of Social Security as a retirement benefit, its broad aim is to protect against the risk of lost income from work. The income loss might be due to retirement, disability, or to a survivor after the death of a family breadwinner. Last year, 14% of Social Security beneficiaries (10.6 million people) were disabled workers; the remaining 18% were survivors, spouses, or children of workers entitled to benefits, writes Morningstar contributor Mark Miller. Social Security Disability Insurance integral part of overall risk protection for workers; Miller explains how it works

The universe of liquid alternatives funds is shrinking, says senior analyst Jason Kephart. Kephart sees this as a positive, as many of the funds that are closing failed to gain traction either because of poor performance, unattractive fees, or focusing on too niche of a strategy. Having fewer alts options to choose from should help investors focus on alts funds with lower fees from firms that have a history of good stewardship.

"Through the first nine months of 2017, 47 alternative mutual funds have either liquidated or been merged away, and only 34 new funds have been launched. In 2016, 74 alts funds were liquidated or merged away, while 50 new funds were launched. In total, the number of alts funds has fallen from 582 in 2015 to 539 today, and assets are down slightly from the peak in 2015."

If you're a fan of brain-teasing optical illusions, you won't want to miss Mental Floss' collection of 10 award-winning optical illusions accompanied by explanations of how and why the viewer's perception might differ from reality. The images come from the new book Champions of Illusion by Susana Martinez-Conde and Stephen Macknik, professors of ophthalmology, neurology, physiology, and pharmacology at SUNY Downstate Medical Center in New York.

We screened our entire domestic coverage for the 25 cheapest U.S. stocks using only one input: price/fair value. The resulting list was pretty diverse. Whether you're an investor who prefers higher-quality companies or more speculative fare, there's plenty of good ideas.

Senior analyst Andrew Daniels recently provided an in-depth view of the reasons behind Dodge & Cox's Positive Parent Pillar rating. In addition to impressive manager ownership across its strategies, the firm is also 100% employee-owned, which results in extremely low employee turnover and extremely long-term thinking. The firm also achieves a score of 100% on its success ratio, which Daniels describes:

"[The success ratio] measures the percentage of a firm's mutual funds that have both survived (for Dodge & Cox, that's all of them) and ranked in the top half of their respective Morningstar Categories over the period. Impressively, Dodge & Cox looks perfect. Not only do 100% of its share classes earn Morningstar Fee Levels of Low, but its 10-year success ratio through October 2017 was also 100%, meaning the four Dodge & Cox funds that are more than 10 years old have all outperformed."

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