Morningstar Analysis

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Morning Star Analysis (x-ray)

Asset Allocation

        The strategy for our portfolios as to asset allocation was to include at least 10% foreign stocks to attempt to balance the risk. The long portfolio includes 12 securities and the short portfolio has 10. Morningstar in this section describe the portfolio as aggressive, a lot of the assets chosen have a relatively high risk and Morningstar recommends investing in the securities long term. For the long portfolio the asset allocation chart shows 90 percent of securities selected are U.S. stocks, the other 10 percent are foreign securities. The stock that is not from the U.S. is the Novartis AG ADR.

        In the short portfolio the results were very similar, 89 percent are U.S. stocks and 11 percent are foreign. The one foreign stock in this portfolio is Toyota Motor Corporation.

Stock Style

        The segment of the market our long portfolio was most concentrated, is in large firms. About 24 percent are in the large core section, like Johnson and Johnson and Novartis. 24.5 percent are in large growth securities like Activision Blizzard and CVS Health Corp. There was also a small percent in the large value part of the large securities, in total our long portfolio is over 50 percent allocated in large caps. Additionally it has approximately 25 percent in mid-caps and 15 percent in small cap securities.

        While in the short portfolio there is much less concentration on a certain market cap and is close to being evenly invested in all market cap sizes. The class with the largest market position is mid cap growth, which are established companies but are considered to be still developing and have a medium level of volatility. Since established less risky than small cap but more risky that large cap since still considered in the growth stage of the companies’ life.  Overall the large cap stocks take up 27 percent, midcap 38 percent and 35 percent small cap.

        Overall together as a hedged portfolio mid cap growth has the largest percentage in one individual category. But the type that dominates the hedged portfolio is the large cap stocks, all large cap categories combined are 43 percent.

Stock stats

        In the stock stats section much of our numbers are much higher than the benchmark, S&P500. The first figure is showing the forward price/earnings. The average for our long portfolio is 16.21 and the average for the short portfolio is 11.88. While the S&P500 is about .89. The forward price and earnings ratio in our portfolios being much higher than the benchmark, it means that the market may be more likely to pay more for the security because it is showing ability to increase earning. The S&P500 with a lower ratio could mean there is less consumer confidence.