Weekly Recap: Top Value Funds, Top Global Companies and Inflation Hedges That Haven’t


Russia, Ukraine, the market and your wallet

Russian-Ukrainian tensions weighed on markets this week. Dan Kemp, global chief investment officer of Morningstar Investment Management, says investors typically manage geopolitical risk in one of four ways, and some of those ways are better than others. Read Dan’s take on how to think about geopolitical risk and your portfolio in “How Should Investors Manage Risk Like a War in Ukraine?”

Top Funds for Value Renewal

Value stocks have been in the driver’s seat lately: As of this writing, the Morningstar US Value Index has outperformed the Morningstar US Growth Index by nearly 14 percentage points so far this year. .

Is it time to re-examine your portfolio’s exposure to value stocks?

I’m no market timer, but one could certainly argue that value stocks should have more room to maneuver given their still striking underperformance of growth stocks for the three, five and ten year periods. . But we have heard this story before. A more compelling argument for checking your value exposure: Investors may find that their once-balanced portfolio could be skewed toward growth stocks despite recent value outperformance, given the prolonged outperformance of growth stocks. A rebalancing may be needed.

If you’re looking for a value fund for any reason, my Our Picks article this week has you covered. I took a look at the Best Value Funds — those mutual funds and exchange-traded funds in Morningstar’s large, medium, and small-value categories that earn Morningstar Analyst Ratings Silver or better. About four dozen funds make the list, and it’s an eclectic bunch: active strategies, passive approaches, dividend-focused funds, concentrated portfolios, and more.

Inflation hedges that do not have

This week, my colleague John Rekenthaler looked at the performance of a group of investments often thought of as “inflation hedges” – gold, inflation-protected Treasuries, cryptocurrencies and currencies. energy – since last May, when inflation hit unexpectedly. (as John notes, you couldn’t find an economist at the end of 2020 who thought inflation was going to pose a significant threat). “A hedge that doesn’t protect against sudden shocks is a failed hedge,” John said. It turns out that most of these investments were just failed hedges. Read John’s column to find out why and how he now thinks about inflation hedges when building a portfolio.

Proving that great minds do in fact think alike, Morningstar Markets Editor Tom Lauricella this week digs deeper into why TIPS funds are losing money. Tom explained how TIPS work, why they behaved the way they did and what quantitative tightening may mean for them in the future. It’s an excellent read.

Top International Companies

Earlier this year, we presented our list of the best businesses to own: 2022. What makes a business one of the best? For starters, it has carved out a large economic moat and therefore retains unassailable competitive advantages that allow it to hold off its competitors – and this economic moat is stable or growing, without eroding. The “best” companies also generate reasonably predictable cash flows, thanks to low operating and financial leverage and strong balance sheets. Finally, these companies are led by management teams with a proven track record of making sound capital allocation decisions.

This week, my colleague Ruth Saldanha focused on a subset of that list, the best international companies. Two dozen companies were on the list. One of the undervalued stocks among them: Anheuser-Busch InBev (BUD). We think his shares are worth $90 each. Director Philip Gorham calls AB InBev “a monster with vast global scale as well as regional density”. He also notes that the brewer has one of the strongest cost advantages among consumer defensive companies covered by our analysts.

Action of the week: Viacom/CBS

Or should I say “essential”. Remove a page from Meta/Facebook (FB) playbook, Viacom/CBS announced this week its name change to Paramount Global (PARA). That’s no surprise, given that the company not only released strong Q4 streaming numbers, but also updated its 2024 streaming forecast to 100 million from 65 million to 75 million. To get there, Viacom/CBS… er, Paramount… will have to spend a lot of money on content.

This increased spending led Morningstar to lower its estimate of the stock’s fair value to $58 from $61. “We expect the continued investment needed to grow the streaming business will limit margin expansion more than expected,” noted senior analyst Neil Macker. Even after this fair value discount, stocks look quite undervalued.

How to speculate prudently

I know that “speculate” and “cautious” are not words that seem to go together. But in a column this week, Morningstar director of global ETF research Ben Johnson explored the idea of ​​”funny money” (aka “mad money” or “play money”). – those dollars that some investors have set aside to swing for closings and speculate with. Ben admitted there are benefits to fun money ventures. For starters, investors who can eliminate that speculative itch with play money may be less likely to take outsized risks elsewhere in their portfolios. Plus, fun gambling can be educational and, if you’re lucky, rewarding. But play money can, of course, be fraught with inconvenience if you don’t have a plan. Luckily Ben’s article includes a framework that can allow investors to speculate with – you guessed it – caution.

–Susan Dziubinski

Editor’s Choice

What your net worth statement tells you
A summary of all your assets and liabilities is a crucial first step to better managing your finances.

How should investors manage risks like a war in Ukraine?
Here are four ways to manage geopolitical risk in a portfolio, but two may be better than the others.

The best value funds
These value-oriented mutual funds and ETFs all have Morningstar Silver analyst ratings or better.

Best International Businesses to Own: 2022 Edition
These companies from various corners of the world are well positioned for the future.

Corporate leadership will not achieve gender parity until 2060 at its current pace
A Morningstar analysis also found that the gender pay gap has widened during the pandemic after years of improvement.

Tesla Stock vs. Alphabet Stock: Which is the Best Buy Today?
Both can be mega cap growth stocks, but only one is undervalued today.

3 Ways to Take Control in a Volatile Stock Market
Here are some practical steps to steer your portfolio through uncertain times.

What to expect from stocks and bonds
The pros agree: don’t expect sustained returns from US equities in the future.

Should you keep foreign stocks out of your IRA?
Tax considerations suggest yes, but other factors may argue against it.

Is your retirement plan on track?
The answer partly depends on your life stage.

Is your portfolio ready for a rise in interest rates?
With rates on the move, here’s how to value your holdings of stocks, bonds and cash.

The teams of these 2 bond funds are no longer at the top
Here are some highlights from the January ratings.

Why some fund managers have to bet against Apple and Microsoft Stock
Some growth funds hold smaller positions in mega-cap names to avoid hitting SEC limits.

Funny Money: Speculative investing when the stakes are low
Setting aside some play money could be a way to take the itch out of it, but it comes with risks.

7 charts on the rapid rise of active ETFs
Although tiny, active ETFs generated an outsized share of flows in 2021.

Merck shares are undervalued
The drugmaker offers investors robust growth and an attractive dividend, notes the Morningstar analyst.

DoorDash Stock Jumps as 4Q Beat Breaks Losing Streak
With demand for food delivery remaining strong, stocks are still undervalued.

Xylem, Ecolab, Aptiv, American Water and Agilent top the list of S&P 500 companies widely held by sustainable funds, according to RBC Capital
Beneficiaries of growing ESG inflows, many are also high-quality companies with strong moats.

What retirees can do when money is tight
Small subsistence adjustments or an annuity can be an effective solution.

Inflation hedges were not hedged
When inflation came, they fell asleep.

Asset Allocation: The Power of Traditional Thinking
Improving current practice is easier said than done.

The best investments for taxable accounts
With a little caution, investors can build a tax-efficient portfolio that is also diversified.

According to Jeremy Grantham, which super bubbly market is about to explode?
Jeremy Grantham predicts a “super scarcity” of commodities and warns of the end of a US stock market super bubble.

These Top Allocation Fund Managers Face Tough Conditions
Three Morningstar Award-winning target date fund managers shared their insights on how to build portfolios today for long-term success.

A better case for ESG
Dedication to a cause can improve returns for investors.

Investors flee US bond and stock funds in January
US bond and equity funds see outflows as investors brace for interest rate hikes.

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