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Morningstar runs the numbers

Lex Hall  |  27 Jul 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 24 July.

$75 million

The amount of money ploughed into the BetaShares’ Australian Equities Strong Bear Hedge Fund (BBOZ) in June this year, notes Noel Whittaker. “As a sign of its growing popularity and desire to hedge portfolios, BBOZ experienced the third largest fund inflows among the dozens of listed ETFs in Australia in June 2020,” says Whittaker. “With the market continuing to rise, the stand-alone investment experience has not been good, but as a hedge, it is expected to lose money when the rest of the portfolio is making gains.”


The number of truly new vaccines that have been introduced globally in the past 25 years, according to Ken Frazier, chief executive of pharmaceutical giant Merck. “By new, that means that they were effective against a pathogen for which there had previously been no vaccine” Frazier says. “Merck has developed four of those seven and the rest of the world three. There has been an enormous amount of work done in the field of prevention. Despite all this work, the world has been trying to develop a vaccine for AIDS since the early 1980s, and so far, without success.”

4.2 per cent

In June 2000, no single company exceeded 4.2 per cent of the S&P 500’s portfolio, writes Morningstar's John Rekenthaler. Twenty years later, Microsoft, Apple, and Amazon each eclipse that mark. "In addition, whereas tech stocks accounted for three of June 2000’s six largest positions, they currently occupy all six slots. (The seventh is Johnson & Johnson (NYS:JNJ), at 1.4 per cent of the index’s assets.)"


The "right" kind of diversification requires that you own securities that don't behave alike, Morningstar writes. In other words, their price movements have low correlation with each other. Correlation measures the degree at which two securities move in similar patterns. Its value ranges from -1.0, indicating two securities moving perfectly opposite each other, to 1.0, indicating two securities moving in tandem. So to spread out your risk, you would want the securities in your portfolio to have correlations closer to -1.0 than to 1.0


The base case fair value estimate for childcare centre operator G8 Education set by Morningstar analyst Gareth James. "But our bear and bull cases are $1.00 and $2.80 respectively," James adds. "The key assumption underlying all scenarios is that the federal government will continue to subsidise the sector for the foreseeable future and provide additional short-term support during the covid-19 crisis. The current GEM share price is below our bear case scenario which assumes a long-term EBIT margin of 12 per cent, versus 20 per cent in our base case."

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is senior editor for Morningstar Australia

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