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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 year.

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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 Morningstar Global Markets Index has returned more than 23% over the past year, which is great news for stock market investors. But it doesn't give bargain-hunters too much to work with.

In this stock market outlook, Elizabeth Collins, director of equity research in North America, points out that the market-cap-weighted price/fair value ratio for our equity analysts' coverage is 1.06. Communication services is the most undervalued sector, with a price/fair value ratio of 0.93, while basic materials is the most overvalued sector, with a price/fair value ratio of 1.39, Collins says.

2017 was buoyant year for the stock markets, and that's reflected in valuations. Christine Benz, director of personal finance,  takes a look at four pitfalls retirees should guard against in such a lofty market. A big one is the so-called wealth effect.

"It's important at every life stage to make sure that you are not letting your inflated portfolio balances go to your head. When we think of the key things that make or break a retiree's plan, the baseline number that will be the most impactful is that spending rate from the portfolio. I think it's natural to maybe feel a little more comfortable with spending more from your portfolio when your balances enlarge than you otherwise would." 

Jon Hale, director of sustainable investing research, named three trends that he believes will shape ESG and sustainable investing in 2018: climate risk, asset manager engagement, and growing advisor interest.

$459 billion
Exchange-traded funds had raked in nearly $459 billion in new assets through mid-December, said Ben Johnson, director of global ETF research. But despite an abundance of complicated and niche product launches, investors' preferences have skewed toward plain-vanilla ETF products, Johnson said. 

"If you were to look at the roster of the top asset gatherers at individual ETF level, what you see is a smattering of S&P 500 ETFs, ETFs that track the MSCI EAFE Index, other developed ex-U.S. equity benchmarks, the Bloomberg Barclays Aggregate Index. These are uniformly very broadly diversified ways to achieve a very suitable exposure to an asset class. They are uniformly very low cost. Investors' preferences in 2017 have been skewed decidedly toward vanilla."

Despite three Federal Reserve rate hikes during the course of 2017, investors in the intermediate-term bond category have fared relatively well so far this year. Funds in the group, which are home to many so-called core funds, were up 3.8% on average through Dec. 15, says Sarah Bush, director of fixed-income strategies North America. But can this solid performance continue into 2018? She advises investors to temper their expectations.

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    Schwab US Dividend Equity ETF does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.