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Tortoise Portfolio. The objective of Morningstar, Inc.’s Tortoise Portfolio is to focus on “high-quality” businesses, defined as having both durable competitive advantages and strong balance sheets. These are often well-established market leaders with economic moats (preferably wide). Morningstar’s aim for the portfolio is to generate risk-adjusted returns that outperform the S&P 500 over a full market cycle.

Hare Portfolio. The objective of Morningstar, Inc.’s Hare Portfolio is to seek long-term capital appreciation ahead of the S&P 500 Index, focusing on companies with strong and growing competitive advantages. Morningstar is willing for the Hare to accept greater risk in exchange for higher total return potential.

About the Editor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios invested in accordance with a strategy that seeks to focus on companies with stable or growing competitive advantages. David served in several senior research and product development roles and was part of the editorial team that created and launched He was the co-inventor of Morningstar's first investment advice software.

David joined Morningstar in 1994. He holds a bachelor's degree in biology from Skidmore College and a master's degree in biology from the University of Illinois at Springfield.

Our Portfolio Managers

Matthew Coffina, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Hare strategy. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

Michael Corty, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Tortoise strategy. Before focusing his attention on the Tortoise, Michael co-managed five equity strategies offered by Morningstar Investment Management LLC and Morningstar Investment Services LLC since December 2013. Michael was previously a senior equity analyst on Morningstar Inc.’s equity research team covering companies in the media, business services, and consumer industries. Michael also spent several years on Morningstar’s moat committee, which assigns economic moat and moat trend ratings to their global coverage.

Prior to joining Morningstar in 2004, Michael worked at a public accounting firm and in the business lending arm of a major commercial bank. He has an undergraduate accounting degree from Loyola Marymount University, an MBA from Cornell University and is a CFA charterholder.

About the Editor David Photo
David Harrell
Editor, Morningstar StockInvestor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios
Featured Posts
Trade Alert, 9/19/18 -- Selling ESRX, Adding to ENB in Hare

StockInvestorSM focuses on the activities of portfolios of Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies. These portfolios are managed by Morningstar Investment Management LLC, a registered investment adviser, which manages other client portfolios using these strategies. In this trade alert, all mentions of “the Hare” refer to Morningstar, Inc.’s portfolio.

Cigna's CI acquisition of Express Scripts ESRX continues to make steady progress toward completion. The Department of Justice signed off on the deal earlier this week, and with shareholder approval already in hand, the companies just need to clear the deal with certain state regulators and they should be able to close before the end of the year, as previously announced. With uncertainty diminishing, the remaining upside in Express Scripts' stock, relative to Cigna's offer, has dwindled to 2.5%. Since I don't really want to own Cigna (especially considering the Hare already has a stake in managed care peers UnitedHealth UNH and Anthem ANTM), and I don't want to be left holding Express Scripts if the deal were to fall through for some fluke reason, I took this as an opportunity to sell the Hare's remaining 175 shares of Express Scripts at $95.22 per share.

I used some of the proceeds to buy another 225 shares of Enbridge ENB at $34.24 per share, increasing the Hare's weighting to 5.3%. I've been pleased with Enbridge's recent fundamental performance and the changes management has been making to reduce the company's risk profile. Asset sales should help to strengthen the balance sheet and reduce Enbridge's exposure to less-attractive asset categories. Consolidation of the sponsored entities (Enbridge Income Fund TSE:ENF, Spectra Energy Partners SEP, Enbridge Energy Partners EEP, and Enbridge Energy Management EEQ) should greatly simplify Enbridge's corporate structure. The Line 3 replacement project was approved by Minnesota regulators, removing another significant source of uncertainty. At the same time, Keystone XL and Trans Mountain Expansion--two external projects that would compete with Enbridge's Mainline--have faced ongoing delays and regulatory challenges. Enbridge now expects to be in the upper half of its full-year discounted cash flow guidance, which at the midpoint would imply a price/DCF ratio of 10.3. I view that as a very reasonable valuation for one of the highest-quality midstream energy companies. The 6.0% dividend yield remains well covered by distributable cash flow (coverage around 1.6 times). Enbridge also helps provide some valuable diversification to the Hare, given how different it is from most of the portfolio's other holdings.

The remainder of the Hare's Express Scripts proceeds will sit in cash as I scout for other opportunities.


Matt Coffina, CFA
Portfolio Manager, Hare Strategy
Morningstar Investment Management LLC


©2018 Morningstar, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. The information contained in this document is the proprietary material of Morningstar, Inc. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar, Inc., is prohibited. All data presented is based on the most recent information available to Morningstar, Inc. as of the release date and may or may not be an accurate reflection of current data. There is no assurance that the data will remain the same. Rankings, Ratings, categorizations, and fair value estimates are based on the analysis and estimates of analysts of Morningstar, Inc., or its subsidiaries.

The commentary, analysis, references to, and performance information contained within Morningstar® StockInvestorSM, except where explicitly noted, reflects that of portfolios owned by Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies managed by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. References to “Morningstar” refer to Morningstar, Inc.

Opinions expressed are as of the current date and are subject to change without notice. Morningstar, Inc. and Morningstar Investment Management LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only and has not been tailored to suit any individual.

The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment.

This commentary contains certain forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. Securities in this report are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information. Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.

Common stocks are typically subject to greater fluctuations in market value than other asset classes as a result of factors such as a company’s business performance, investor perceptions, stock market trends and general economic conditions.

The Morningstar Rating for Stocks is a forward-looking, analyst-driven measure of a stock's current price relative to the analyst's estimate of what the shares are worth. Stock star ratings indicate whether a stock, in the equity analyst's educated opinion, is cheap, expensive, or fairly priced. To rate a stock, an analyst estimates what he or she thinks it is worth (its "fair value"), using a detailed, long-term cash flow forecast for the company. A stock's star rating depends on whether its current market price is above or below the fair value estimate. Those stocks trading at large discounts to their fair values receive the highest ratings (4 or 5 stars). Stocks trading at large premiums to their fair values receive lower ratings (1 or 2 stars). A 3-star rating means the current stock price is fairly close to the analyst's fair value estimate. Morningstar’s analysts are employed by Morningstar, Inc. or its subsidiaries. In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission.

Unless otherwise noted, data included in this alert is taken from the subject company’s reports or other public materials.

Matthew Coffina, CFA, owns all of the Hare stocks in his personal accounts.

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