Ultimate Stock-Pickers is a concept we’ve developed at Morningstar with one simple goal: to cross check our stock research against the opinions of professional money managers. While the stock analysts at Morningstar spend the majority of their time hunting for quality companies trading at attractive valuations, we would be remiss if we failed to acknowledge the fact that a whole host of individuals outside of Morningstar are engaged in the very same effort. So why not take advantage of the fruits of their labour and in the process highlight many of the gems that exist from time to time within our own universe of 5-Star stocks?
We’re not as interested in what all managers think though so much as we are in what the best in the business are doing. As such, we maintain a list of 26 managers that we believe are worth monitoring on a regular basis. With most institutional investment managers required to report their investment to the Securities and Exchange Commission (SEC) on a quarterly basis, and Morningstar receiving monthly updates on the holdings of many mutual fund managers, we are able to construct a consolidated list of holdings for the managers on our roster and track any meaningful changes in their equity positions.
Once that is completed, we assess the relative attractiveness of each individual security by how many funds actually hold it and whether or not they’ve been adding to (or subtracting from) the position. We also look at the percentage each security makes up of the portfolios of each of the managers on our list, determining the level of conviction they have in a particular name by the amount they’ve committed to it.
All of which allows us to compile a list of top purchases and sales, which we cross-reference against our own stock ratings to determine if a security is still selling at an attractive enough valuation to warrant further investigation.
