Investment Strategy
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 Morningstar.com. 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
A Transition
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.

Matthew Coffina, the portfolio manager for Morningstar's Hare portfolio, plans to leave Morningstar on Thursday, June 30, 2022. As of June 21, 2022, management of the Hare portfolio transitioned from Matt to the broader team of Morningstar Investment Management's Select Equity portfolio managers, including Mike Corty, manager of Morningstar's Tortoise portfolio.

Matt wanted to share this message with MSI subscribers:

Dear Subscribers,

After 15 years at Morningstar -- nearly 9.5 of them managing the Morningstar Inc. Hare strategy -- the time has come for me to embrace a new challenge. I've always viewed being a portfolio manager as both a privilege and a heavy responsibility. There are no words to express my gratitude for your support throughout the years. Although Morningstar's Hare portfolio has been going through a rough patch over the past 12 months, I'm optimistic about its long-term prospects: Lower valuations are correlated with higher future potential returns, and I believe current valuations on many Hare holdings are more attractive than they've been in a long time. I leave you in good hands with David, Mike, and Morningstar's large and experienced team of portfolio managers and analysts.

All the best,
Matt


As for Matt's replacement, the current Select Equity portfolio managers will serve in the interim as the team structure is evaluated. The plan is to add another portfolio manager with experience in selecting undervalued companies with economic moats and strong earnings growth. Individual members of this team, along with potential new hire(s), may be considered as permanent manager(s) for the portfolio.

The four portfolio managers for the Hare are:

• Michael Corty, CFA, Head of U.S. Equity Strategies, Portfolio Manager, Tortoise and Equity Income
• John Owens, CFA, Senior Portfolio Manager, All-Cap Equity and Small/Mid-Cap Equity
• George Metrou, CFA, Portfolio Manager, Dividend
• Nabil Salem, CFA, Associate Portfolio Manager, International Equity ADR

This team has worked together -- exchanging feedback and analysis on existing holdings, potential buys and sales, and portfolio construction -- for all Morningstar Investment Management strategies*, including the Hare portfolio. The Hare portfolio will continue to reflect what the team believes are its best ideas within faster-growing segments of the market and the team will manage the strategy showcased in StockInvestor with a focus on a long-term investment horizon, while being mindful of both risk and reward.

Portfolio Manager Biographies

Michael Corty, CFA
Michael is the Head of U.S. Equity Strategies and a Portfolio Manager within Morningstar's Investment Management group. He is the lead portfolio manager for Tortoise and Equity Income strategies. Michael joined the group as a portfolio manager in December 2013.

Previously, he was a senior equity analyst in Morningstar, Inc.'s equity research department where he also served as a voting member of the economic moat committee. Michael holds a bachelor's degree from Loyola Marymount University and an MBA from Johnson Graduate School of Management at Cornell University.

John Owens, CFA
John is a Senior Portfolio Manager within Morningstar's Investment Management group. He is a member of the Select Equity Portfolio team and lead manager for All-Cap Equity and Small/Mid-Cap Equity strategies. John joined the group as a portfolio manager in January 2009.

Previously, John was a senior equity analyst and investing specialist within Morningstar, Inc.'s equity research department. He holds a bachelor's degree in accounting from Oklahoma State University and an MBA from the University of Texas at Austin.

George Metrou, CFA
George is a Portfolio Manager within Morningstar's Investment Management group. He is a member of the Select Equity Portfolio team and lead manager for the Dividend strategy. George joined the group as a portfolio manager in 2018.

Prior to joining Morningstar Investment Management, George was the Director of Research and a Portfolio Manager at Perritt Capital Management and a Portfolio Manager at Windgate Wealth Management. George holds a bachelor's degree from DePaul University where he majored in Finance.

Nabil Salem, CFA
Nabil is an Associate Portfolio Manager within Morningstar's Investment Management group. He is a member of our Select Equity Portfolio team and took over as the lead manager for the International Equity ADR strategy in 2022 after serving as a co-portfolio manager on the strategy from 2021.

Previously, Nabil was an associate portfolio manager within the Investment Management group's multi-asset team where he served as the asset class lead for emerging markets research. He joined Morningstar, Inc. in 2013. Nabil holds a bachelor's degree in Economics and Finance from Washington University in St. Louis and an MBA from the University of Chicago Booth School of Business.

*Portfolio management services are provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.

Please see new analyst notes and updates below from Morningstar Research Services for CarMax KMX, Charles Schwab SCHW, eBay EBAY, Ionis Pharmaceuticals IONS, Taiwan Semiconductor Manufacturing TSM, and Visa V. And American Express AXP, Bank of New York Mellon BK, Charles Schwab, JPMorgan Chase JPM, and Wells Fargo WFC were all discussed in a general note on bank stress tests that's also included below.

Best wishes,

David Harrell,
Editor, Morningstar StockInvestor

CarMax Posts Solid Fiscal First Quarter Despite Inflation Headwinds
by David Whiston, CFA, CPA, CFE | Morningstar Research Services LLC | 06-24-22

CarMax reported first-quarter fiscal 2023 results that showed improvement from recent free cash flow problems, and we are maintaining our fair value estimate. The firm fought through challenges, including the lack of generous government stimulus to consumers in the prior year's quarter and inflation causing poor vehicle affordability, to still post diluted EPS of $1.56 that beat the Refinitiv consensus of about $1.50 while also generating free cash flow. Same-store unit volume fell hard by 12.7% year over year, but same-store revenue grew 11.6% as transaction prices rose by 28% to nearly $29,000. Management played a balancing act between gross profit dollars per retail unit, or GPU, and gross margin due to the chip shortage ravaging new vehicle inventory, which in turn has created massive demand for used vehicles. GPU rose by 6.1% to $2,339, which, by our records, is the highest for any quarter back through fiscal 2009, while gross margin per retail unit fell by 170 basis points to 8%. Higher GPU only partially offset an 11% total unit volume decline, and lower units also meant less extended protection plan sales, so total gross profit dollars fell by 5.3%, which led to operating margin excluding CarMax Auto Finance declining by 240 basis points to 1.8%.

This quarter was a tough comparable for CarMax due to last year's quarter being so strong due to a rebound from COVID-19 at the start of fiscal 2021. High inventory acquisition costs led to an adjusted free cash burn of nearly $1.6 billion the past three quarters, but inventory run off this quarter contributed $433.5 million and led to adjusted free cash flow, by our math, of $733.5 million. We are glad to see a return to positive free cash flow and that management repaid about $585 million of credit line debt while also repurchasing $157.6 million of what we view as undervalued stock. We estimate CarMax now has about $959 million of debt due in June 2024 compared with over $1.5 billion at the end of fiscal 2022.

Decreasing Our Fair Value Estimate for Schwab to $84 Due to Market Depreciation
by Michael Wong, CFA, CPA | Morningstar Research Services LLC | 06-22-22

We're decreasing our fair value estimate for Charles Schwab to $84 per share from $89. Our fair value estimate implies a price/2023 earnings multiple of 22 times and price/book multiple of about 3 times. Of the net $5 decrease in our fair value estimate, there was a $10.50 decrease due to incorporating a larger decline in client assets in 2022, which was offset by $1 of earnings accrued since our previous valuation update, $3.50 from incorporating changes in our interest rate-related revenue modeling, and $1 of miscellaneous changes.

EBay's KnownOrigin Purchase Seems to Have More to Do With Technology Than NFTs; Shares Undervalued
by Sean Dunlop | Morningstar Research Services LLC | 06-22-22

Narrow-moat eBay announced its acquisition of nonfungible token marketplace KnownOrigin, citing the target's proficiency in blockchain-enabled digital collectibles and eBay's own technology-led reimagination in the press release. The terms were undisclosed. We expect neither the acquisition price nor the U.K.-based NFT marketplace's turnover to materially affect consolidated financials, and we plan to maintain our $65 fair value estimate for eBay. The shares look meaningfully undervalued.

KnownOrigin is one of the smaller of the slew of NFT marketplaces that have arisen over the past half decade, with most estimates suggesting approximately $7 million-$8 million in total platform turnover since its 2018 inception. This implies that competitors like OpenSea, Axie, Larva Labs/CryptoPunks, NBA Top Shot, and Rarible generate significantly higher daily trading and gross merchandise volume. KnownOrigin most recently raised capital a little more than half a year ago at a $30 million post-money valuation, per PitchBook data. Given prevailing market conditions, we expect that eBay likely closed the deal at a bargain price, as a dearth of capital is starting to drive smaller, unprofitable companies toward better-capitalized suitors.

In our view, the strategic ramifications of the deal have more to do with KnownOrigin's back-end capabilities and the potential brand impact of being the first major e-commerce player to enter the NFT space, with eBay pushing to change consumer perception after meaningful platform and technology investments during CEO Jaime Iannone's tenure. EBay's "vault" facility permits storage and fractionalized trading of physical collectibles, which appear at least technologically adjacent to the trading of NFT assets. Proof of ownership and trust will prove essential to eBay's vault initiatives, and KnownOrigin looks like a cogent acquisition underlying that strategic thrust.

Maintaining Our $62 Fair Value Estimate for Ionis Following Positive Phase 3 Eplontersen Data
by Karen Andersen, CFA | Morningstar Research Services LLC | 06-21-22

We're not making any changes to our $62 Ionis fair value estimate following positive top-line interim results from a phase 3 study of Astra-partnered eplontersen in polyneuropathy, as the drug remains on track to be filed later this year and approved in 2023. After 35 weeks of treatment, the drug led to significant differences from historical controls on co-primary endpoints (transthyretin concentration and neuropathic disease progression) as well as a key secondary endpoint, quality of life. However, we had already assumed trial success in this indication. In addition, collaboration terms (roughly 20% royalty from Astra) and competition (Alnylam received approval of Amvuttra last week), limit cash flow impact. In this indication, we think Alnylam has the edge, with Amvuttra's every-three-month dosing (versus monthly dosing for eplontersen), although more details on the extent of eplontersen's benefit to disease progression will determine uptake. We continue to assign Ionis a narrow moat, based on the breadth and potential of its late-stage pipeline in neurology, cardiology, and rare diseases.

The June 21 news pertains to the smallest portion of the transthyretin amyloidosis market, with data still to come in the larger cardiomyopathy indication, where we think Ionis could see more significant revenue. Ionis announced in April that it has increased the size and duration of its phase 3 trial for eplontersen in cardiomyopathy; while this pushes the timing of data from late 2024 to the first half of 2025, we think improving the odds of achieving clear signals for different subsets of patients—those with hereditary or wild type disease, for example, or those naïve to treatment or taking Pfizer's Vyndaqel in combination with eplontersen—could make it worth the wait, despite the fact that this increases the potential lead for Alnylam's Amvuttra (still expecting data in early 2024). We assume a 60% probability of eplontersen's success in cardiomyopathy.

TSMC's Comments at Symposium Back Our View on Firm's Technology Leadership; FVE Retained
by Phelix Lee | Morningstar Research Services LLC | 06-20-22

After TSMC presented at its annual Technology Symposium event, we remain confident on the company's technology leadership and execution of cutting-edge chip manufacturing. We view this translates into strong pricing power that can more than offset macroeconomic inflationary pressures, which is in line with our investment thesis. The event can also dispel some of the concerns arising from TSMC confirming its roadmap later than Samsung and Intel. Subsequent to the event, we maintain our fair value estimate of TWD 990 ($171 for the ADR shares) and wide moat rating, and see shares as undervalued.

Most notably, TSMC confirmed longstanding speculation that its 2-nanometer process will be adopting nanosheet transistor "architecture" that is akin to Intel's RibbonFET and Samsung's MBCFET. The company said production is scheduled to begin in 2025. We think this is slightly incrementally positive, because this should ease most concerns of delay from 3nm to 2nm that stem from changing architecture. A change in architecture entails more design changes to chips than normal advancements.

Fresh details on 3nm led to us having more conviction on how TSMC can capitalize on new processes longer. TSMC added N3P, N3S and N3X to the 3nm family of processes, yielding a total of five variants. The new variants are likely to be launched no earlier than 2024. As previously disclosed, TSMC plans to start mass production of the first 3nm process in the second half of 2022 and the second one (N3E) about a year later. To top it off, TSMC introduced a technique called "FinFlex", which helps customers optimize power consumption and computing performance on the same chip. We see two benefits to FinFlex's approach, namely 1) speeding up time to market by simplifying core optimization; and 2) allowing lower development costs by avoiding complete redesigns in tried-and-true parts of a chip.

Boosting Visa's Fair Value Estimate
by Brett Horn, CFA | Morningstar Research Services LLC | 06-22-22

We are increasing our fair value estimate for Visa to $229 from $221 per share, due to time value since our last update and some modest changes in our assumptions. Our fair value estimate equates to 31.9 times adjusted projected fiscal 2022 earnings. While growth recently has been muted due to the economic impact of the coronavirus, particularly due to the impact on cross-border transactions, we expect recovery over time and think the ongoing shift toward electronic payments will allow Visa to maintain strong growth rates over the next five years and project gross and net revenue to grow at a 13% CAGR. We expect better growth in the near term due to the bounceback in cross-border volumes, with this tailwind partially offset by the exit from Russia. We think that future growth will be increasingly driven by international markets, as emerging markets become a more meaningful engine for the business. While margins on a gross revenue basis have stalled in recent years and have been under pressure through the pandemic, we think the scalability of the business, a bounceback in more lucrative cross-border transactions and more muted client incentive growth will allow for margin improvement going forward, and project operating margins (based on gross revenue) to improve from 49% in fiscal 2021 to 51% by fiscal 2026.

Bank Stress Tests 2022; Higher Stress Capital Buffers Likely Coming As CET1 Drawdowns Increase
by Eric Compton, CFA | Morningstar Research Services LLC | 06-23-22

We went into this year's Federal Reserve bank stress tests expecting a bit more pressure on stress capital buffers as multiple banks had warned in the preceding quarter that their SCB was likely to increase. This is indeed what played out, as we estimate that roughly seven of the 20 U.S. banks we cover that participated this year are likely to see a higher SCB once the assigned SCBs become official. It appears that JPMorgan, Bank of America, and Citigroup are all likely to see increases to their SCBs of close to 1% each. The biggest increase seems likely to come from M&T Bank, which we expect to increase close to 2.2%, going from 2.5% to roughly 4.7%. Meanwhile, we expect the SCB for 11 of the 20 U.S. banks we cover to remain stable, including for Wells Fargo, which had previously warned that their SCB could go up, so this is a slight positive surprise for the bank in our view. Finally, we think Goldman Sachs could see a slight decrease to its current SCB of 6.2%, potentially declining to 6%, while Discover could see a more material decline, going from 3.6% to 2.5%.

While higher SCBs on average was one key theme, we think the second is that there simply is not as much room for capital return in general. Going into the stress tests, many banks were already close to or even below their targeted common equity Tier 1 ratios. After last year's tests, we calculated that roughly 5% of market cap was the average amount of excess capital per bank, whereas this year it is sitting at less than 2%. This has been driven in part by rising rates and the effects on accumulated other comprehensive income and also growing balance sheets. Several banks have also raised their common equity Tier 1 ratio targets as they prepared for potentially higher SCBs and also higher GSIB buffers in 2023 and beyond. We think the tests signal once again that the banking sector is in a good place to withstand a recession, but don't expect a share repurchase boom for the foreseeable future.

Thirty-three banks participated this year, compared with 23 last year, as this year was the “on” part of the cycle for the banks which only have to participate once every two years.

Digging deeper into the traditional U.S. banks, we estimate that JPMorgan, Bank of America, and Citigroup will all have to spend the next several quarters more focused on building capital, whereas Wells Fargo should be pretty close to their current capital targets. U.S. Bancorp, PNC, and M&T Bank all stand out to us as the traditional U.S. banks with the most excess capital in today's environment. We'll also emphasize that earnings growth should be strong in the near future as aggressive rate hikes feed through, so this should support some repurchase activity even as several of the bank under our coverage likely also focus on building some additional capital as well.

Charles Schwab's stress test results were fantastic, but we don't expect the company to materially increase its capital returns. Charles Schwab was the only bank in the stress test whose projected minimum capital ratios during the stress period were actually higher than its actual capital ratios at the end of 2021. However, Charles Schwab's capital situation will likely change over the next several years, and the company should be retaining earnings in anticipation of the change.

As we wrote in previous notes, the company is near $700 billion in assets, and if its balance sheet exceeds $700 billion for 4 consecutive quarters, it will become a category 2 institution and have to include unrealized losses in its capital ratios. Given the recent increases in interest rates, Charles Schwab has booked billions of unrealized losses on its fixed income securities portfolio. If the company were to include unrealized losses in its capital ratios, its Tier 1 leverage ratio would be relatively close to the minimum. Since the company will exceed $700 billion in assets, sooner or later, as it grows its banking operations to generate net interest income, it needs to build up a buffer of capital. The recent stress test didn't include the company's recently booked unrealized losses in its calculations.

Morgan Stanley and Goldman Sachs did fine on the stress test, but we don't expect them to significantly increase capital returns this year compared to the previous. Of the 33 banks in the stress test, Morgan Stanley and Goldman Sachs were among the top five in the magnitude of their common equity Tier 1 ratio drawdowns during the stress period. That said, their minimum ratios during the severely adverse scenario still remained a decent amount over regulatory minimums. For both, their Tier 1 leverage ratio and supplementary leverage ratio in the stressed case were closer to regulatory minimums than their common equity Tier 1, Tier 1 capital, or total capital ratios. Morgan Stanley's Tier 1 leverage ratio and supplementary leverage ratio minimums during the test were about 30% above the regulatory minimum. Goldman Sachs's respective ratios were about 15% above their minimums. Both of the banks in the previous year significantly increased their quarterly dividend, to $0.70 from $0.35 for Morgan Stanley and $2 from $1.25 for Goldman Sachs, but their payout ratios are likely more in line with longer-term management targets now, so they don't need another significant increase.

Diving deeper in the custody banks, these generally fared well in their stress scenarios. Under the severely adverse scenarios, common equity Tier 1 capital ratios were roughly flat for Northern Trust at the end of the stressed period and actually increased for BNY Mellon and State Street as the banks remain modestly profitable in the period. Under the severely adverse scenario, total loan portfolio loss rates were 2.2%, 5.4%, and 6.8% for BNY Mellon, State Street, and Northern Trust, respectively. State Street's and BNY Mellon's total loan portfolio loss rates are meaningfully below the average of 6.4% of the 33 participating firms and reflects the fact that the custody banks' business models involve considerably less credit risk vis-à-vis traditional financial institutions.

Consumer-focused banks, particularly Discover and Capital One, performed well in their stress scenarios. Both American Express and Discover saw their common equity Tier 1 capital ratios increase by the end of the stressed period to 12.5% and 15.7% respectively, while Capital One maintained reserves within management's long-term target range of 10% to 11% throughout the test. Projected loss rates were high across the board, ranging from 9.6% for American Express to 16.3% for Discover, reflecting the credit sensitive-nature of these firms and the high projected loss rates on credit cards.

Unlike many of their traditional banking peers, Discover and Capital One still have material amount of excess capital remaining, a consequence of surprisingly low credit costs on credit cards so far in 2022 and in 2021. These stress test results clear the way for Discover and Capital One to execute on their already announced $4.2 billion and $5 billion share repurchase plans, respectively, as both firms work towards their targeted common equity Tier 1 ratios.

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Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. Analyst ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst ratings are based on Morningstar’s analysts’ current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst ratings are not guarantees nor should they be viewed as an assessment of a stock's creditworthiness. Ratings, analysis, and other analyst thoughts are provided for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2022 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.

Disclosure: 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 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.

All Morningstar Stock Analyst Notes were published by Morningstar, Inc. The Weekly Roundup contains all Analyst Notes that relate to holdings in Morningstar, Inc.'s Tortoise and Hare Portfolios. 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.

David Harrell may own stocks from the Tortoise and Hare Portfolios in his personal accounts.


 
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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 Morningstar.com. 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.

Investment Strategy



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.