Morningstar Advisor - April/May 2013 - (Page 30)

Sector Rap A Defensive Ride By Philip Guziec Consumer defensive stocks, though fairly valued, still offer opportunities for investors concerned about safety. In the face of commodity cost pressures and weak economies worldwide, consumer defensive companies continue to press on through the ups and downs of the business cycle. Investors, searching for yield and safety, have rotated into the sector, pushing up values. Still, Morningstar’s equity analysts think that the long-term fundamentals of the sector are strong and that opportunities exist for patient investors. To learn more about consumer defensive stocks, I sat down with R.J. Hottovy, Thomas Mullarkey, Erin Lash, and Ken Perkins, who 30 Morningstar Advisor April/May 2013 Morningstar equity analysts who cover the sector. Our discussion took place Feb. 25. Philip Guziec: The consumer defensive sector is supposed to hold some value through an entire business cycle. How well did these stocks hold up through the our latest cycle? R.J. Hottovy: Through 2008 and 2009, consumer defensive stocks outperformed the broader market. What we saw was a lot of rotation into high-quality names. Consumer defensive is one of the more-concentrated categories in terms of economic moats. Roughly two thirds of the 100 consumer defensive companies that we cover have either a wide or narrow Morningstar Economic Moat Rating. That makes them attractive in times of difficulties. These are the brands that people buy, regardless of the economic backdrop. And while shoppers may trade down to private-label and lower-priced items, these products are still produced by consumer defensive firms. Now, as we started to see a bit more recovery, the bounce back among the consumer

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

Morningstar Advisor - April/May 2013