Market Uncertainty, Stocks to Watch, and Top Small-Cap Funds

And when it comes to investing, to thyself thine own self be true. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_smartinvestor&utm_content=33163&elqTrackId=73704f37118c4236bc2249a9cc2668f4&elq=5b33457f8f3f4c338e2161ee2eb0e1bf&elqaid=33163&elqat=1&elqCampaignId=15374) [Smart Investor] Smart Investor with [Susan Dziubinski, Director of Content]( [Susan Dziubinski] Market UncertaintyUncertainty about the newest COVID-19 variant’s impact on the economic recovery has roiled the stock market. In addition, Federal Reserve Chairman Jerome Powell’s comments that it’s time to stop referring to inflation as “transitory,” and that the Fed’s tapering may happen sooner than expected, have only further jostled stocks. Some say that investors should tune out market volatility and maintain a long-term perspective. But others, including Morningstar director of personal finance and retirement planning [Christine Benz]( advise that there are things that investors can do to take control of their portfolios during turbulent times. We’ve pulled together some of Christine’s top ideas in our [Guide to Market Uncertainty.]( Those investors who typically “buy the dip” no doubt have their watch lists at the ready when stocks tank. Don’t have a watch list? No problem. Three high-quality, well-run companies whose stocks are worth considering on pullback: Coca Cola KO, Dominion Energy D, and Roche RHHBY. My colleague [Jakir Hossain]( shares more ideas in [3 Wide-Moat Stocks on Sale After the Omicron Sell-Off](. Stock of the WeekOn Monday, Twitter TWR co-founder Jack Dorsey stepped down as CEO, effective immediately. Parag Agrawal, the firm’s chief technology officer, now fills the CEO role. We didn’t make any changes to our $58 fair value estimate, nor to our [capital allocation]( or Morningstar [economic moat ratings]( as a result of Dorsey’s departure, [says]( senior analyst [Ali Mogharabi](. “In our view, the firm will be better positioned to increase user monetization and expand margins under Agrawal as Dorsey could not focus mainly on Twitter’s future when also leading the narrow-moat Square SQ,” Ali says. Only time will tell whether Agrawal can foster the type of innovative culture that Dorsey did, though. As of this writing, we think Twitter’s shares are undervalued. Dorsey had a busy week: On Wednesday, Square announced it’s changing its name to Block. No matter what you call the company, its stock is outrageously overpriced today according to our metrics.) The Best Small-Cap FundsAs we enter the year’s final stretch, many investors’ thoughts turn to portfolio matters. We consider what did well for us this year, what didn’t, and where we should make some changes. For many, small-cap stocks continued to disappoint this year. Oh sure, the [Morningstar US Small Cap Index]( is up about 11% this year as of this writing--which is nothing to sneeze at. But the [Morningstar US Large Cap Index]( is up more than 20%. Despite some changes in leadership during the course of the past 12 months, large-cap stocks have, in general, dominated. Contrarian types--or those who find their exposure to small-cap stocks otherwise lacking--can find some small-cap funds to investigate further [in my Our Picks column]( which highlights 11 active and passive mutual funds and exchange-traded funds that earn our highest fund analyst rating. Diamond Hill Small Cap DHSIX is just one of the gems on the list. Morningstar’s [Dan Culloton]( who follows the fund, points out that managers Chris Welch and Aaron Monroe look for stocks trading below their intrinsic values, but they’re not deep-value types; rather, they prefer business with stable cash flows, good managers, and sturdy balance sheets. “Buying the shares of decent businesses when their prices are depressed, as Welch and Monroe attempt to do, has delivered good risk-adjusted returns over time,” says Dan. To Thine Own Self Be TrueMy colleague [Sachin Nagarajan]( wrote an article this week about [lessons he learned from ARK Innovation ETF]( ARKK. What I enjoyed most from Sachin’s investment confessional was his growing awareness of what matters to him as an investor. Not to steal his thunder--please read his article!--but Sachin has discovered despite his long runway to retirement, he isn’t a fan of volatility and prefers “forget-them” investments. A while ago, Christine Benz also shared some personal investing preferences she has developed over time in [My Too Hard Pile is Pretty Big](. What are your preferences? Have you articulated them in any way? Doing so may help you declutter your portfolio or uncover holdings that may no longer mesh with who you are as an investor today. An exercise to consider before you review your portfolio at year’s end, perhaps! ADVERTISEMENT [media]( [media] Morningstar Specialists [Your Financial To-Do List for December]( [Your Financial To-Do List for December]( The end of the year is a great time to review your portfolio. Christine Benz, Susan Dziubinski [Yes, RMDs Can Improve Your Portfolio]( [Yes, RMDs Can Improve Your Portfolio]( RMD-related tax bills hurt, but surgical pruning of problem positions can help you raise cash and reduce risk. Christine Benz [Pros and Cons of Donor-Advised Funds]( [Pros and Cons of Donor-Advised Funds]( Donors benefit from an immediate tax deduction, tax-free growth, and investment flexibility. Amy C. Arnott, CFA [The Best Small-Cap Funds]( [The Best Small-Cap Funds]( These small-company-focused mutual funds and ETFs all earn Morningstar Analyst Ratings of Gold. Susan Dziubinski [Better Stocks Than Bonds in Retirement]( [Better Stocks Than Bonds in Retirement]( A history of asset allocation for retirees. John Rekenthaler [2021 Fund Flows Winners and Losers ]( [2021 Fund Flows Winners and Losers]( Some asset managers did a better job than others attracting new investors this year. Russel Kinnel, Susan Dziubinski [The Best and Worst New ETFs of 2021]( [The Best and Worst New ETFs of 2021]( There were a record number of new ETFs launched in 2021. These are our selections for the year's best and worst. Ben Johnson, CFA [For the Bond Market, This Time May Be Different]( [For the Bond Market, This Time May Be Different]( Will the skeptics at long last be vindicated? John Rekenthaler Popular This Week [3 Wide-Moat Stocks on Sale After the Omicron Sell-Off]( These high-quality names were caught up the market downdraft. Jakir Hossain [3 Lessons I Learned From ARK Innovation ETF]( ARK Invest’s flagship offering might not be for me--and that’s OK. Sachin Nagarajan [The FAANG Market Is Fading]( The impact of the largest stocks on the market has lessened and that could be good news for investors. Lauren Solberg, Tom Lauricella [Why Did a Star Manager Take His Boutique Fund Firm Public?]( After stunning growth and a successful IPO, what’s next for Rajiv Jain’s GQG Partners? Gregg Wolper, Ph.D. [We're Still Bullish on U.S. GDP Growth]( The third quarter served as a reminder that the economic recovery is far from over. Preston Caldwell Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2021 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602