MORN - Morningstar, Inc.

NasdaqGS - NasdaqGS Real Time Price. Currency in USD
154.48
+0.52 (+0.34%)
At close: 4:00PM EDT

154.48 0.00 (0.00%)
After hours: 4:00PM EDT

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Previous Close153.96
Open154.11
Bid154.21 x 1000
Ask154.40 x 2900
Day's Range154.03 - 155.61
52 Week Range99.67 - 155.61
Volume44,655
Avg. Volume81,232
Market Cap6.589B
Beta (3Y Monthly)0.88
PE Ratio (TTM)38.24
EPS (TTM)4.04
Earnings DateJul 25, 2019
Forward Dividend & Yield1.12 (0.73%)
Ex-Dividend Date2019-07-03
1y Target Est75.00
Trade prices are not sourced from all markets
  • eBay Profit Beats Analysts' Estimates; Company Mulls Asset Sales
    Bloomberg5 hours ago

    eBay Profit Beats Analysts' Estimates; Company Mulls Asset Sales

    (Bloomberg) -- EBay Inc. profit topped analysts’ estimates in the face of slowing sales growth, showing the company can extract more from its millions of loyal buyers and sellers even if it struggles to attract many new customers.The company also bowed to pressure from activist investors, saying it is reviewing the role and value of its StubHub and Classifieds businesses "to determine the best path forward to maximize shareholder value."EBay shares rose almost 6% in extended trading on Wednesday, after closing in New York at $39.03."The idea that management is open to explore a sale of StubHub caught the market’s attention," said RJ Hottovy, an equity analyst at Morningstar Inc. "They still have things to solve with their online marketplace business."EBay Chief Executive Officer Devin Wenig has struggled to jump start growth since he took the helm in 2015 following a split with PayPal Holdings Inc. Activist investors Elliott Management Corp. and Starboard Value acquired EBay stakes, and in January Elliott proposed changes including the possible sale of tickets marketplace StubHub and the classified ads business.EBay shares are up about 40% this year, more than double the benchmark S&P 500 Index. Wenig sees advertising and EBay’s new payments business as sources for revenue growth. Earlier this year, he rejected the idea of selling StubHub or other pieces of the company."They have assets they can sell to generate cash and return to shareholders," said Victor Anthony, an analyst at Aegis Capital Corp. "The reasons to own the stock remain valid despite the pressure on growth."Revenue rose 1.8% to $2.69 billion in the second quarter, in line with analysts estimates. Earnings, excluding some costs, were 68 cents per share in the quarter. Analysts estimated 62 cents, according to data compiled by Bloomberg.EBay raised its full-year profit forecast to a range of $2.70 to $2.75 per share. Wall Street expected $2.70 a share, on average.The company also projected that adjusted profit will be 62 cents a share to 65 cents a share in the current quarter on revenue of $2.61 billion to $2.66 billion. Analysts, on average, estimated profit of 63 cents a share on revenue of $2.68 billion.EBay’s advertising sales soared more than 130% to $89 million in the second quarter. Over 6,000 merchants have opted into its growing payments platform as EBay unravels a long relationship with PayPal.The online marketplace said it has 182 million active global buyers who spend about $100 billion on the platform each year.Gross merchandise volume -- the value of all goods sold on EBay properties -- fell 4.4% to $22.6 billion in the second quarter from a year earlier, the San Jose, California-based company said Tuesday in a statement.(Updated with analyst comments in seventh paragraph.)To contact the reporter on this story: Spencer Soper in Seattle at ssoper@bloomberg.netTo contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Alistair Barr, Andrew PollackFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • One Bad Leveraged Loan Isn’t a Liquidity Scare
    Bloomberg18 hours ago

    One Bad Leveraged Loan Isn’t a Liquidity Scare

    (Bloomberg Opinion) -- Everyone seems to have a fear they just can’t shake. Maybe someone was stung by bees as a child and is frightened by them as an adult. Perhaps flying in an airplane is terrifying, even though statistics show it’s safer than getting in a car.For fixed-income traders, that fear is illiquidity. The idea of being stuck in an investment with no way out other than to sell at a fire-sale price and take a steep loss is undoubtedly painful to contemplate.That sort of distressing situation, of course, has made for splashy headlines lately. H2O Asset Management came under scrutiny last month for owning what amounted to loans repackaged into private placements. Morningstar Inc. published a report questioning the “liquidity and appropriateness” of some holdings, which sparked huge withdrawal requests, which naturally raised questions about whether it would have to take drastic actions like other pressured fund companies such as Woodford Investment Management and GAM Holding AG. Just last week, Bank of England Governor Mark Carney put yet another spotlight on illiquidity, saying that Neil Woodford freezing his flagship fund demonstrated the risks associated with money managers amassing hard-to-sell assets.Now, with all that as a backdrop, imagine a $693 million leveraged loan that was trading at 97 cents on the dollar losing about a third of its value in one day. At first glance, it would seem the illiquidity boogeyman has made it to the other side of the Atlantic.This is effectively the recent saga of Clover Technologies:Clover’s loan isn’t especially large by Wall Street standards, yet its stark and swift decline set off fresh alarm bells — bells that regulators have been sounding for months. It immediately became a real life example of the perils of investing these days in the $1.3 trillion market for leveraged loans, where a global chase for yield has allowed an explosion in borrowing and lax underwriting. In a market where trading can be thin — and at a time when illiquidity is suddenly becoming a prominent concern in credit circles — the episode shows how loans to highly leveraged companies can quickly implode when fortunes change.When buyers “head for the exits at the same time, prices can drop fast and furiously” given the lack of liquidity, said Soren Reynertson of investment bank GLC Advisers & Co., which specializes in debt restructuring.The key phrase, to me, is “when fortunes change.” Make no mistake, this loan checks just about every box for a risky investment. Clover was acquired by private equity firm Golden Gate Capital, which ramped up leverage to extract dividends for itself. The loans were light on investor protections, or covenants, giving buyers less insight into how the company was performing. Both of these elements are pervasive throughout the $1.3 trillion leveraged-loan market.But they’re not really the reason Clover’s loan plunged. Instead, it was a significant credit event on July 9:Clover disclosed that day it had lost two key customers and hired advisers to study its options. The price of its loan quickly plummeted from 97 cents to around 65 cents, which put it in the distressed category.Two days later, Moody’s downgraded the company a notch to Caa3. It cited its “aggressive financial policies, evidenced by its private equity ownership and history of shareholder distributions and large debt-funded acquisitions.’’…Moody’s now predicts a higher likelihood Clover will default on its debt obligations. The ratings agency cites concerns over long-term viability of the business and “unexpected” operational developments. Its debt is just over 6 times its earnings, a level that typically raises lender concerns about the company’s ability to meet its financial obligations.Look, I’m sure it was not fun to be managing of one of those mutual funds or collateralized loan obligations holding Clover’s loan when it made that disclosure, particularly because the downgrade probably forced them to sell. But this doesn’t rise to the level of a liquidity scare in my book. Rather, it’s a reminder that companies can struggle, or even fail, which admittedly is a novelty during an era in which central-bank stimulus and ultra-low interest rates are allowing zombie firms to muddle along indefinitely. When something of this magnitude happens, market prices will tumble, no matter if it’s a publicly traded stock, a speculative-grade bond or a loan. What should be concerning to leveraged-loan investors is the rise of so-called enhanced CLOs, which are effectively a wager that more companies will go the way of Clover and get downgraded to the triple-C tier. These new funds are allowed to have up to half their portfolios in triple-C debt, while traditional CLOs are only permitted a fraction of that exposure. As my Bloomberg Opinion colleague Matt Levine quipped, “In finance, the way to enhance something is to make it worse.”“Investors say there is ample evidence that the limited ability of CLOs to hold triple-C loans creates unusual price moves” in leveraged loans, the Wall Street Journal reported. Since November, three different managers have issued $1.6 billion of these enhanced CLOs in a bet that they can pick out which loans have fallen too far from which are legitimately veering toward default. Something tells me that’s easier said than done. Catching a bunch of falling knives will at best come with a few deep cuts, and at worst take off your entire hand. It’s asking for trouble, though they’ll likely be doing the broader market a service by making price swings around downgrades a bit less volatile. Who knows — maybe they were the ones who stepped in to buy Clover’s loan.In the meantime, it’s worth taking a step back and remembering what the leveraged-loan market is at its core. It has seen explosive growth and as a result is filled to the brim with credit risks and liquidity risks. One-offs like Clover are usually the former. But it’s the latter that will continue to keep investors up at night.To contact the author of this story: Brian Chappatta at bchappatta1@bloomberg.netTo contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • 13 Super-Safe Dividend Stocks to Buy Now
    Kiplinger3 days ago

    13 Super-Safe Dividend Stocks to Buy Now

    The stock market's major indices are at or near all-time highs, and as stocks go up, dividend yields go down. As a result, many of the best dividend stocks to buy right now sport relatively modest yields.That's OK. Because your focus also should be on dividend safety and payout growth that will enhance your yield over time.Not every stock has been caught up in 2019's surge to new peaks. GameStop (GME), CenturyLink (CTL), Vodafone (VOD), Pitney Bowes (PBI), L Brands (LB), Deutsche Bank (DB) - all of these well-known companies have either cut or outright suspended their dividends this year. Those moves were a blow to all existing shareholders, but especially those who were relying on the income from these sometimes generous dividend payers to tackle regular expenses in retirement.How do you ensure the dividend stocks you're invested in won't do the same? One way is to monitor the DIVCON system from exchange-traded fund provider Reality Shares. DIVCON's methodology uses a five-tier rating to provide a snapshot of companies' dividend health, where DIVCON 5 indicates the highest probability for a dividend increase, and DIVCON 1 the highest probability for a dividend cut. And within each of these ratings is a composite score determined by cash flow, earnings, stock buybacks and other factors.These are 13 of the safest dividend stocks to buy right now. Each stock has not only achieved a DIVCON 5 score, but a composite score within the top 15 of all stocks that DIVCON has evaluated. This makes them the crème de la crème of dividend safety - and more likely to keep the dividend increases coming going forward. SEE ALSO: 25 Stocks Every Retiree Should Own

  • Morningstar8 days ago

    11 Dividend All-Stars

    Last night, baseball's biggest names took to the field in Cleveland for Major League Baseball's 90th All-Star Game. A subset of the Morningstar US Market Index (which represents 97% of equity market capitalization), the Morningstar Dividend Yield Focus Index tracks the top 75 high-yielding stocks that meet our screening requirements for quality and financial health. Dan Lefkovitz, a strategist in Morningstar's indexes group, argues two particular factors--economic moats and distance to default scores--can lead investors to safe dividends.

  • PR Newswire9 days ago

    Morningstar Assigns New Analyst Ratings to 28 Strategies, Upgrades Five, and Downgrades Eight in June 2019

    CHICAGO , July 9, 2019 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, has published a summary of Morningstar Analyst Rating™ activity for 155 U.S. ...

  • Morningstar9 days ago

    Second-Quarter 2019 Fixed-Income Markets in Review

    The broad Bloomberg Barclays U.S. Aggregate Bond Index generated 3.1%--its highest quarterly return in over seven years--despite signals of slowing economic growth and unpredictable near-term monetary policy actions. In mid-May, the yield curve modestly twitched, as the yield on the 10-year dropped below that on the three-month yield, an event that is widely interpreted as signaling an impending recession. The corporate-bond Morningstar Category delivered 3.8% from April through June, while the high-yield corporate and bank-loan Morningstar Categories managed positive but far more modest performance than the previous period.

  • Lipper Rating vs. Morningstar: What's the Difference?
    Investopedia9 days ago

    Lipper Rating vs. Morningstar: What's the Difference?

    A comparison between the Morningstar and Lipper mutual fund rating systems and why it's important for investors to understand them.

  • Barrons.com10 days ago

    Morningstar Just Made Its Ratings System Even Tougher

    Morningstar will revise its mutual fund ratings system to put a bigger focus on investor fees and set a higher bar for funds to earn top ratings of Gold, Silver, or Bronze.

  • Why Kellogg Stock Popped 6% Today
    Motley Fool15 days ago

    Why Kellogg Stock Popped 6% Today

    Yes, it's bigger in meatless burgers than Beyond Meat. But for how long?

  • Benzinga15 days ago

    Kellogg Rallies After Columnist Reviews MorningStar Farms Grillers' Vegetarian Burgers

    Kellogg (NYSE: K ) shares rallied after a MarketWatch columnist shared why he thinks, “Kellogg is sitting on a 'fake meat' gold mine bigger than Beyond Meat,” adding that MorningStar Grillers’ vegetarian ...

  • Barrons.com15 days ago

    Kellogg Is Sitting on a ‘Fake Meat’ Gold Mine Bigger Than Beyond Meat

    There’s a sudden Wall Street mania for so-called fake meat burgers. Kellogg already owns the largest fake meat operation in the country in MorningStar Farms. Where’s its IPO?

  • Hedge Funds Have Never Been This Bullish On Morningstar, Inc. (MORN)
    Insider Monkey21 days ago

    Hedge Funds Have Never Been This Bullish On Morningstar, Inc. (MORN)

    Does Morningstar, Inc. (NASDAQ:MORN) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to […]

  • Carney Blasts Funds With Illiquid Assets, Piling Pressure on H2O
    Bloomberg22 days ago

    Carney Blasts Funds With Illiquid Assets, Piling Pressure on H2O

    (Bloomberg) -- Bank of England Governor Mark Carney reprimanded investment funds that hold illiquid assets but allow unlimited withdrawals, adding to pressure on firms like H2O Asset Management."These funds are built on a lie, which is that you can have daily liquidity, and that for assets that fundamentally aren’t liquid,” Carney told a parliamentary committee on Wednesday. “That leads to an expectation of individuals that it’s not that different than having money in a bank. You get a series of problems, you get a structural problem but then you get a consumer issue.”H20, backed by France’s Natixis SA, suffered the steepest ever one-day decline in assets for a group of its largest funds. After almost a decade of near-constant inflows, clients last week started to yank money from some of its funds over concerns about illiquid holdings tied to a controversial German businessman. Assets in six of its funds fell more than 5.6 billion euros ($6.4 billion) over just four days through Monday to less than 16 billion euros.H2O said in a statement that net outflows had “slowed significantly” since Monday, and that it had received some “material inflows” on Tuesday. It didn’t provide further details.H2O, founded by Bruno Crastes and Vincent Chailley in 2010, attempted to stem the decline in assets last week with a series of measures meant to assure investors it can meet redemptions while making it more painful for those seeking to get out. The goal was to avoid a similar fate of Swiss asset manager GAM Holding AG and famed U.K. stock picker Neil Woodford which both froze funds amid an investor exodus.Between 2017 and the end of April, H2O’s assets doubled to $37.6 billion, according to an investor letter seen by Bloomberg.What Bloomberg Intelligence SaysNatixis’ share-price slide and outflows across various funds reflect “fears of further withdrawals and loss of performance fees. Timely H2O action to boost liquidity for redemptions is key, and more may be required.”\--Jonathan Tyce and Georgi Gunchev, banking industry analystsClick here to view the research“On this broader systemic point around the structure of these funds, this is a big deal,” Carney said. “You can see something that could be systemic.”H2O has sold some 300 million euros of unrated private bonds and marking down the remaining ones. The firm dropped its entry fees altogether and said it would appoint an independent auditor to restore investor confidence.The sale and a marking down of the non-rated corporate bond holdings across H2O’s range reduced the value of the rarely traded notes to 500 million euros, the company said in a statement on Monday, without elaborating on the size of the previous holdings.The crisis is also weighing on Natixis’s share price, which lost almost 12% last week and has yo-yoed since Monday. This is partly because the funds have been lucrative for the bank. One strategy, H2O Multibonds, made more than 30% for its investors last year, according to data compiled by Bloomberg.H2O’s crisis started after the Financial Times showed the exposure of several of its funds to companies related to Lars Windhorst, a German financier with a history of troubled investments. Morningstar Inc., an influential research firm used by investors as a guide to buy or sell funds, subsequently suspended its bronze rating on the H2O Allegro fund on Wednesday over concerns about the “liquidity and appropriateness” of some of its holdings.The Allegro Fund’s assets under management plunged by 42% from June 18, the day before the Morningstar note, through June 24. Assets in H2O’s Adagio fund dropped by 26.5% in the same period.The move led jittery investors, still reeling from star stock picker Woodford’s decision to freeze withdrawals from his flagship fund, to start yanking cash from H2O. More than a dozen of the firm’s funds allow clients to invest or exit on a daily basis.Until recently, H2O had been growing rapidly. Last year, the firm introduced entry fees of as much as 5% to slow the amount of new cash as several funds neared capacity. Between 2017 and the end of April, H2O’s assets doubled to $37.6 billion, according to an investor letter seen by Bloomberg.\--With assistance from Kateryna Hrynchak and Vivianne Rodrigues.To contact the reporters on this story: Lucca de Paoli in London at gdepaoli1@bloomberg.net;Lucy Meakin in London at lmeakin1@bloomberg.net;Carolynn Look in Frankfurt at clook4@bloomberg.netTo contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, James Hertling, Patrick HenryFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • PR Newswire23 days ago

    Morningstar, Inc. to Announce Second-Quarter 2019 Financial Results on July 25

    CHICAGO , June 25, 2019 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN) plans to report its second-quarter 2019 financial results after the market closes on Thursday, July 25, 2019 . The company does ...

  • How Financial Advisors Pick Client Investments
    Investopedia23 days ago

    How Financial Advisors Pick Client Investments

    How advisors choose investment portfolios is varied, and investors are wise to check with theirs to find out how they make investment choices.

  • Is Morningstar’s Star System An Effective Ranking Tool? (MORN)
    Investopedia23 days ago

    Is Morningstar’s Star System An Effective Ranking Tool? (MORN)

    Learn why Morningstar's star rating system is not always a great predictor of future performance, and why investors should not pick funds on star ratings alone.

  • Morningstar24 days ago

    1- and 2-Star Morningstar Medalists

    A version of this article first appeared in the May 2019 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website. Most Morningstar Medalist funds in the Morningstar 500 have relatively strong track records, and while bouts of underperformance are inevitable, few of those that are actively managed have overall Morningstar Ratings of 2 stars or less. Below, we examine the prospects of underperforming medalist funds in the Morningstar 500.

  • Bloomberg26 days ago

    Natixis H2O Funds Lose $1.3 Billion as Asset Slump Deepens

    (Bloomberg) -- A group of Natixis SA fund assets dropped by 1.1 billion euros ($1.3 billion) on Thursday, a day after Morningstar Inc. raised concerns about one of the investment pool’s holdings and suspended its rating.The H2O Allegro fund’s assets, managed by Natixis-backed H2O Asset Management, declined by 225 million euros, according to the company’s website. That’s on top of a 113 million-euro fall on Wednesday, when the research and rating company published its report on that fund, data compiled by Bloomberg show. Three other funds, Adagio, Multi Aggregate and Multibonds, also saw their assets decline, bringing the combined one-day drop to more than 1 billion euros.New data show growing investor unease around H2O funds after Morningstar raised concerns about the “liquidity and appropriateness” of some corporate-bond holdings as well as potential conflicts of interest. Some of H2O’s funds, which allow clients to make daily withdrawals, hold rarely traded bonds issued by companies linked to controversial German financier Lars Windhorst.Morningstar’s decision to suspend the fund’s rating came after the Financial Times wrote about H2O’s exposure to the bonds.H2O’s assets have doubled to $37.6 billion since 2017, according to an investor letter seen by Bloomberg. A spokesman for H2O declined to comment.(Updates with FT article on the bonds in fourth paragraph.)To contact the reporters on this story: Nishant Kumar in London at nkumar173@bloomberg.net;Lucca de Paoli in London at gdepaoli1@bloomberg.net;Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.netTo contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Josh Friedman, Melissa KarshFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Natixis Funds Saw Record Asset Drop on Day of Morningstar Report
    Bloomberg27 days ago

    Natixis Funds Saw Record Asset Drop on Day of Morningstar Report

    (Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.A Natixis SA macro fund that sent fresh tremors through Europe’s financial industry this week saw assets fall by a record on the day Morningstar Inc. raised concerns about its holdings.The H2O Allegro fund slumped by 113 million euros ($128 million) Wednesday, when the research and rating company published its report, according to data compiled by Bloomberg. That was its biggest one-day drop since it was started in 2011. At least two other funds also saw assets fall the most since inception that day.Morningstar suspended its rating on the Allegro fund, which is run by Natixis-backed H2O Asset Management, over concerns about the “liquidity and appropriateness” of some corporate-bond holdings as well as potential conflicts of interest. The fund, which allows clients to make daily withdrawals, holds rarely traded bonds issued by companies linked to controversial German financier Lars Windhorst. H2O founder Bruno Crastes sat on an advisory board of Windhorst’s investment vehicle Tennor Holding.H2O Asset Management as a whole saw clients pull about 600 million euros this quarter through June 20, the bank said today. It didn’t say how much of that came after the Morningstar report, but available fund data suggests much of it was pulled this week.Apart from the Allegro fund, H2O’s MultiAggregate and Adagio funds saw their biggest one-day declines Wednesday, adding up to a one-day slump of 325 million euros in the three investment pools combined. The figure reflects performance and client redemptions or subscriptions. A spokesman for H2O declined to comment on the drop in assets.The rating suspension and outflows come as a blow for one of Natixis’s most successful investment boutiques in Europe. Natixis Chief Executive Officer Francois Riahi and Jean Raby, who oversees the bank’s investment-management activities globally, moved to contain damage, asking Crastes to leave the Tennor board. He will be replaced by H2O’s Chief Investment Officer Vincent Chailley, according to a spokesman for the firm.Natixis fell as much as 6.3% in Paris trading after Thursday’s 12% loss. H2O’s woes are adding trouble for Riahi after a slump in trading revenue in the first quarter and losses on Korean derivatives announced in December.H2O, which runs more than a dozen funds that allow clients to invest or exit on a daily basis, has seen rapid growth over the past few years. Assets have doubled to $37.6 billion since 2017, according to an investor letter seen by Bloomberg. Growth over the past two years has boosted its funds to near full capacity, a level beyond which many funds stop taking fresh money for fear of harming returns. The firm instead imposed an entry fee of as much as 5% on some of its funds to curb inflows, according to its website.In a push to diversify its business, H2O has also started buying into external hedge fund managers. In 2017, the firm took a stake in Hong Kong-based startup Poincare Capital Management. It also acquired a majority stake in systematic investment firm Arctic Blue Capital started by former Millennium Management money manager Jean-Jacques Duhot.H2O Allegro, a global macro fund with 2.26 billion euros in assets as of Wednesday, returned 10% through June 19 this year on top of a 28% gain last year. That’s better than over 90% of peers, according to data compiled by Bloomberg, and even beats some of the best known macro hedge funds in the world.“The team and strategy are not for all investors,” said Richard Philbin, chief investment officer of Wellian Investment Solutions, which helps clients allocate about 1.7 billion pounds ($2.2 billion). Still, “the issues surrounding the Allegro fund are not necessarily contagious to other funds within the group offerings.”Woodford, GAMMorningstar’s decision to review the fund’s rating added to growing jitters in the fund management industry about liquidity. Neil Woodford, one of the U.K.’s most famous stock pickers, froze redemptions from his flagship equity fund, LF Woodford Equity Income, this month amid an investor exodus following months of poor performance. Swiss money manager GAM Holding AG is still in the process of unraveling hard-to-sell securities from a bond fund it froze last year.European investment rules require funds to have no more than 10% of their capital in less liquid securities. In the case of H2O, which invests in corporate borrowings, the line between illiquid and liquid is more difficult to draw, according to Matias Mottola, the analyst who covers H2O’s funds at Morningstar.When it comes to the liquidity of bonds, “it is a question of interpretation. We can’t make a final judgment,” Mottola said.To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net;Lucca de Paoli in London at gdepaoli1@bloomberg.netTo contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian BaumgaertelFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Central Banks Are Creating a Horde of Zombie Investors
    Bloomberg27 days ago

    Central Banks Are Creating a Horde of Zombie Investors

    (Bloomberg Opinion) -- Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, wrote a provocative op-ed in the New York Times last weekend. Titled “When Dead Companies Don’t Die,” it argues that unprecedented monetary stimulus from global central banks created a “fat and slow” world, dominated by large companies and plagued by a swarm of “zombie firms” — those that should be out of business but survive because of rock-bottom borrowing costs.I would add that central bankers are creating a horde of zombie investors as well.By now, bond markets have adjusted to the unabashedly dovish shift from European Central Bank President Mario Draghi and Federal Reserve Chair Jerome Powell. In the U.S., benchmark 10-year Treasury yields fell below 2% for the first time since Donald Trump was elected president, and some Wall Street strategists expect it’ll reach a record low around this time in 2020. Across the Atlantic, 10-year German bund yields plumbed new lows of negative 0.33%, French 10-year yields hit zero for the first time, and the entire yield curve in Denmark was on the cusp of turning negative.With any sort of risk-free yield largely zapped worldwide on the prospect of further monetary easing, is it any surprise what happened next? Investors turned to the tried-and-true playbook of grabbing anything risky. No matter that the global recovery has lasted nearly a decade, trade concerns abound and central banks see economic weakness — the S&P 500 Index promptly rose to a record high as investors mindlessly plowed in. And in a more specific example highlighted by my Bloomberg Opinion colleagues Marcus Ashworth and Elisa Martinuzzi, bond buyers were all-too-eager to snap up subordinated Greek bank debt from Piraeus Bank SA, which tapped European capital markets for the first time since the financial crisis. “The offer would have been unthinkable a year ago,” they wrote.Are these really the characteristics of healthy financial markets? It hardly seems ideal that individual investors, pensions and insurers are effectively forced into owning lower-rated bonds, equities or even alternative assets like timber to meet their return targets. In fact, that sounds like the textbook definition of a bubble. But as Sharma points out, permanently easy policy aims to create an environment in which those bubbles can’t pop.“Government stimulus programs were conceived as a way to revive economies in recession, not to keep growth alive indefinitely. A world without recessions may sound like progress, but recessions can be like forest fires, purging the economy of dead brush so that new shoots can grow. Lately, the cycle of regeneration has been suspended, as governments douse the first flicker of a coming recession with buckets of easy money and new spending. Now experiments in permanent stimulus are sapping the process of creative destruction at the heart of any capitalist system and breeding oversize zombies faster than start-ups.To assume that central banks can hold the next recession at bay indefinitely represents a dangerous complacency.”Time and again, market watchers will warn that the credit cycle is on the verge of turning. “The future looks pretty bleak,” Bob Michele, JPMorgan Asset Management’s head of global fixed income, said this week as he advocated selling into high-yield rallies. “We have probably the riskiest credit market that we have ever had,” Scott Mather, chief investment officer of U.S. core strategies at Pacific Investment Management Co., said last month. Morningstar Inc. just suspended its rating on a fund owned by French bank Natixis SA because of concerns about the “liquidity and appropriateness” of some corporate bond holdings, adding to jitters about a broader liquidity mismatch in the money-management industry.It’s hard to take this fretting too seriously when central banks persistently come to the rescue. What’s more, in many ways it’s in the best interest of all involved not to get too worked up about those risks.U.S. households and nonprofits had a combined net worth of $109 trillion in the first quarter of 2019, a record, according to Fed data. Dig a bit deeper, and it’s clear that a surge in the value of their equity holdings plays a crucial role. They directly owned $17.5 trillion of stocks, which represents 110% of their disposable personal income. That ratio reached 120% in the third quarter of 2018, very nearly topping the all-time high of 121.2% set just before the dot-com crash. Add in “indirectly held” stocks, and individuals look as exposed to equities as ever. At $12.3 trillion, those holdings were worth 78.6% of DPI in the third quarter, compared with 69.5% at the dot-com peak.To put it more plainly, since the start of the economic recovery in mid-2009, their total assets have increased by almost 70%. Financial assets(1) have appreciated 76%. Stock holdings have soared by more than 140%.Effectively, the sharp rally in equities has turbocharged a resurgence in the overall wealth of Americans. The prospect of losing those gains is almost too painful to think about. Perhaps that’s why, as DoubleLine Capital’s Jeffrey Gundlach pointed out in January, investors were “panicking into stocks, not out of stocks” during the late-2018 sell-off. “People have been so programmed” to buy the dip, he said, that it reminded him a bit of how the financial crisis developed. Call investors programmed; call them zombies — it’s the same thing.The Fed, for its part, argues that it’s doing good by sustaining the expansion. Notably, Powell said the economic recovery is starting to reach segments of the U.S. population that had been largely left out thus far — communities that “haven’t had a bull market” and “haven’t had just a booming economy.” Overall, he said officials don’t see signals that the U.S. is at maximum employment. Morgan Stanley’s Sharma argues wage growth is sluggish because bigger companies have more power to suppress worker pay, given that they crowd out (or acquire) startups and other competition.There are no easy answers to these large-scale problems. That includes central banks simply lowering interest rates or purchasing more government bonds. Powell said as much, noting “we have the tools we have.” But at least he has some room to maneuver toward a soft landing. The ECB, which has pushed yields on some corporate bonds in the region below zero, and the Bank of Japan, which owns large swaths of local exchange-traded funds, have done virtually no tightening and may soon need to ease even further.The most troubling part of this heavy-handed approach among central banks is that it eliminates the option for investors to earn any sort of return above inflation on safe assets. This delicate balance seems as if it can only last as long as business and consumer sentiment allows. It has been more than a decade since the Fed last cut interest rates, and during that period, it paid handsomely to be a zombie investor throwing money at the S&P 500. With the next easing cycle upon us, much is riding on the status quo prevailing.(1) Aside from stocks, this includes deposits, direct-benefit promises, non-corporate businesses and other financial assets.To contact the author of this story: Brian Chappatta at bchappatta1@bloomberg.netTo contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

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