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Morningstar runs the numbers

Lex Hall  |  14 Apr 2020Text size  Decrease  Increase  |  
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We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended 10 April.


When you look over the average 10-year time frame, nine out of 10 times, an investor who dribbled money into the market would have ended up with less money than if they had simply put all their money into the markets at the beginning. The fundamental problem with dollar-cost averaging, writes Morningstar’s Tom Lauricella, is that it is a market-timing strategy. Holding money back and then investing it later only makes sense if investors believe that the prices of the securities they are planning to buy will fall for a while and then eventually rise. “As it is unlikely that many investors are making such forecasts, most investors should not be following a DCA strategy,” says Lauricella.

-10.28 to -17.45 per cent

That’s the range of returns from balanced funds during the coronavirus sell-off from 21 February to 25 March. These funds are defined as holding a rough 50/50 split between growth and defensive assets. But the mix varied significantly, says Morningstar analyst Edward Huynh. Growth represented between 42 and 66 per cent for the cohort. The best performer in the category by a significant margin was Perpetual Wholesale Diversified Growth, returning -10.28 per cent due to its underweight exposure to equities relative to the cohort. The worst performing balanced fund strategy was FirstChoice WS Moderate.

1 star

That's the Morningstar rating for video-calling app Zoom Technologies, according to analyst Dan Romanoff. Since its listing in April last year, Zoom has risen almost 100 per cent. It has also defied the wider corona sell-off. Since 20 February, its share price has risen by about 15 per cent versus a 23 per cent fall for the broader market. But not all are convinced of its potential, including Romanoff, who cites the free-user model, stiff competition and embarrassing security breaches as reasons to be wary. “We think the rise in Zoom shares is unwarranted, and our discounted cash flow-derived fair value estimate remains unchanged at US$62,” says Romanoff.

$300 billion

That's the amount of government bonds Australia is set to issue over the next 15 months, says Anthony Fensom. Australia will be competing with other governments to do so, which has prompted questions over the nation’s coveted triple A credit rating. Ratings agency Moody’s has downgraded the credit outlook for Australia’s banking system to “negative” from its previous “stable” outlook. This serves as a warning of the stresses imposed on banks due to the impact of an economic shutdown on profits and loan repayments. “Yet analysts suggest that a combination of RBA bond buying, demand from local banks and Australia’s relative fiscal strength should absorb the extra bond issuance. This should ensure bond prices remain relatively stable.”

86 per cent

The amount by which US internet giant Cisco fell during the dotcom boom of 2000. It has of course recovered since then but the lesson remains, says Morningstar behavioural economist Sarah Newcomb. If you’re about to buy shares in a company, know what you’re getting into. And to do that you may wish to consult Morningstar’s fair value estimate. “While the fair value estimate is just one of several data points you may want to consider,” says Newcomb, “it is a start, and it beats focusing on herd behavior or cable news hype.”


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is senior editor for Morningstar Australia

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