We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Jan. 6.
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By Morningstar.com | 01-07-17 | 05:00 AM | Email Article

Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

Morningstar.com offers coverage of 950 stocks, 1,150 mutual funds, and 300 ETFs, plus market news, economic analysis, portfolio-planning insights, and investment commentary.

The economy added 156,000 jobs in December. While the number came in below consensus, it was right about where director of economic analysis Bob Johnson thought it would be. Johnson shares his outlook for 2017 job growth:

"Like the ADP data showed, just round numbers, in 2015 maybe we added 210,000 jobs on average per month. [In 2016] it was 180,000 jobs, and I'm unfortunately thinking it's probably going to be a little less than that on average in 2017. And I think if you look at a couple of key sectors that's caused growth, healthcare is going to be in a bunch of uncertainty at the beginning of the year; the housing market's looked a little bit dicey more recently in some of the data there; it's really hard to see what avenues are going to add a lot more to growth. So, not a lot--maybe it's 170,000, 175,000, but I wouldn't be looking for a big boom in employment growth."

$2 to $3 
Macy's lowered 2016 full-year earnings guidance revealed that its lack of pricing power appears worse than we previously thought. Morningstar senior analyst Bridget Weishaar plans to reduce Macy's fair value estimate accordingly:

"We previously thought that improved inventory levels would result in lower discounting. The guidance released today suggests that this is not the case. Therefore, we see our long-term operating margin estimate (averaging 8% over the next five years versus 8.6% in 2015 and 9.6% on average over the past three years) as too optimistic. Our $40 fair value estimate will likely fall $2-$3 to reflect this."

98.88 out of 100 
That's the score earned by Roth Grand Cru Surchoix, the winner of the "World Cheese Championship Contest." But there's no need to travel to Europe to enjoy the world's best cheese, according to Conde Naste Traveler; Grand Cru Surchoix hails from Wisconsin, aka America's Dairyland:

"This year, an American-made cheese was named Best-in-Show at the World Cheese Championship Contest, the first time since 1988 that an American cheese won the award. Both times, the winners were from—you guessed it—Wisconsin. Yet unlike the U.S. winner 28 years ago, which was a string cheese…this year's winner…is an Alpine-style cheese (similar to Gruyère) aged a minimum of nine months to create a firm texture and flavors of caramel, fruit, and mushroom."

It may be tempting to skimp on due diligence for index funds and exchange-traded funds; they typically employ transparent, rules-based strategies that are not susceptible to key-manager risk, says Alex Bryan, director of passive strategies in North America. But Bryan points out that it pays to evaluate index construction matters because it can have a significant impact on a fund's performance relative to its peers over the long term. He outlines six traits the best indexes tend to have:

"The best index funds have portfolios that are representative of their actively managed peers--or in the case of strategic-beta funds, the style they are trying to capture. They are well-diversified, investable, transparent, sensible, and take steps to mitigate unnecessary turnover. Funds don't have to score well on all these dimensions to receive a Positive Process Pillar rating, but this framework can help us differentiate between seemingly similar strategies and better evaluate their merit."

Morningstar's John Rekenthaler wrote that he expects that each mutual fund that now has an A share will soon have a companion T share. T shares differ in structure from A shares in two ways: For one, T shares have the same sales charges across all fund categories, while A shares do not. Secondly, the costs for A shares can vary by fund company:

"Those discrepancies will be eliminated with T shares. All T shares will be priced identically: 2.5% upfront (declining for larger purchases) and an ongoing 0.25% 12b-1 fee. Dealer reallowances will be banned."

Getting financially fit is perennially among the most popular new year's resolutions for Americans, right up there with losing weight and exercising more, says Morningstar's director of personal finance, Christine Benz. As with any worthy goal, tackling it in stages can keep it from becoming overwhelming. With that in mind, she offers a month-by-month guide that includes many common financial goals. 

6 Months
New guidelines issued by the National Institute of Allergy and Infectious Diseases recommend giving babies pureed food or finger food containing peanut powder or extract before they are 6 months old, The New York Times reported. This is contrary to advice given in recent years by the American Academy of Pediatrics, which recommended withholding peanuts from children at high risk for allergies until they were 3 years old.

"If broadly implemented, the new guidelines have the potential to dramatically lower the number of children who develop one of the most common and lethal food allergies, said Dr. Anthony Fauci, the institute's director, who called the new approach 'game changing.'"

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