Morningstar - Q1 2022 - 21

U.S. Investors Stay Too Close to Home
% of Global Market
% of American Equity Fund Assets
80
75
59
41
25
U.S. Stocks
Non-U.S. Stocks
Source: Morningstar Direct. Data as of 09/30/2021.
60
20
40
Todd Trubey is a senior manager research analyst at
Morningstar Research Services LLC.
Growth VASGX, holds 61% in U.S. stocks and 39%
in non-U.S. stocks.
The two funds do stand out in the category.
The average split between U.S. equities and
non-U.S. equities was 76% to 24% as of October
2021. True, a few funds are domestic-only,
and some have specialized goals. Still, it seems
that home bias remains entrenched-if
less so than it once was. Investors might consider
a take that is oddly contrarian: Allocate like
the market.
network effects, helping build solid records of
excess economic returns on invested capital that
analysts expect to endure.
more, political risks exist, and-most importantly-
there are currency issues. Currencies fluctuate
considerably, and people tend to spend their
home currency more than foreign currency. So, it's
reasonable for Americans to tilt slightly toward
U.S.-dollar-denominated securities-especially as
they approach retirement.
If those are your reasons, a home tilt might
make sense. But home bias doesn't typically start
with rational, economic explanations. More
often it comes from national pride and investors'
desire to " invest in what they know. "
Patriotism and familiarity are fine, but they're
not a strong foundation for investing success.
Diversification, on the other hand, is a proven way
to improve investment returns and reduce
risk. Investing abroad increases diversification;
home bias, by default, limits it.
Fidelity Multi-Asset Index FFNOX, which used
to be called Fidelity Four-in-One Index, was
recently upgraded to a Morningstar Analyst Rating
of Gold from Silver after the firm renovated
the fund's process and portfolio. A huge number
of factors are considered when rating a fund,
but here, one of the most crucial was the firm's
decision to move from the long-standing
70% weighting in U.S. stocks to a marketlike 60%.
It's no coincidence that the only other Gold-rated
fund in the allocation-70% to 85% equity
Morningstar Category, Vanguard LifeStrategy
Customer switching costs come from the security
solutions, which are essential for operations.
Analysts believe widespread digital transformation
initiatives during the pandemic put a spotlight
directly on the importance of proper security. They
expect the threat landscape to intensify as
organizations deal with protecting a mixture of data,
applications, and users across various locations.
Combine these durable factors with a rising number
of standards around cybersecurity protection
measures, punitive fines for data miscues, and the
massive costs of business disruption caused by
successful cyberattacks, and the leading
cybersecurity vendors should benefit from robust
long-term demand.
Three Network
Security Stocks Get
a Moat Upgrade
Morningstar analysts upgraded their economic
moat ratings for Check Point Software Technologies
CHKP, Fortinet FTNT, and Palo Alto Networks
PANW to wide from narrow. For Morningstar's moat
trend ratings, analysts maintained Palo Alto at
positive, adjusted Fortinet to positive from stable,
and kept Check Point at stable. The moat rating
upgrades drove fair value estimate increases as well:
to $137 per share from $132 for Check Point, to
$285 per share from $250 for Fortinet, and to $585
per share from $550 for Palo Alto.
These three network security companies have
established prolific customer switching costs and
Network effects come from companies continuously
collecting and analyzing threat anomalies and
providing security upgrades. Organizations need
the latest threat preventions, driving a virtuous
cycle of security technology upgrades and
customer additions.
Cybersecurity is not a winner-take-all market, but
certain subsegments will have a few dominant
players. This means vendors can establish moats in
various subsegments of the $130 billion cybersecurity
market, and certain segments like network
security (which includes firewall and demands
about 20% to 25% of security product budgets) can
have multiple companies with wide moats.
Morningstar analysts believe that the network
security market will continue consolidating around
Check Point, Fortinet, and Palo Alto and that
these companies will continue expanding outside
their core solutions to gain further spending.
Network Security Leaders
Name
Morningstar
Rating
Check Point Software CHKP QQQQ
Fortinet FTNT
QQQ
Palo Alto Networks PANW QQQ
Source: Morningstar Direct. Data as of 12/09/2021.
Fair Value
Estimate ($)
Uncertainty
137 Medium
285 High
585 High
Economic Moat
Wide
Wide
Wide
Moat Trend
¶ Stable
∞ Positive
∞ Positive
morningstar.com/products/magazine
21

https://www.morningstar.com/funds/xnas/vasgx/quote https://www.morningstar.com/stocks/xnas/chkp/quote https://www.morningstar.com/stocks/xnas/chkp/quote https://www.morningstar.com/stocks/xnas/ftnt/quote https://www.morningstar.com/stocks/xnas/panw/quote https://www.morningstar.com/stocks/xnas/panw/quote https://www.morningstar.com/funds/xnas/ffnox/quote https://www.morningstar.com/funds/xnas/vasgx/quote http://www.morningstar.com/products/magazine

Morningstar - Q1 2022

Table of Contents for the Digital Edition of Morningstar - Q1 2022