Top Wide-Moat Stocks of Year, Vanguard Smackdown, Revisiting 2021’s Trendy Topics

And the Fed’s new groove. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_smartinvestor&utm_content=33405&elqTrackId=7cad12037c9044fb8aa1e088ec72f7f9&elq=e811c51fb295473b896db63e7a993262&elqaid=33405&elqat=1&elqCampaignId=15522) [Smart Investor] Smart Investor with [Susan Dziubinski, Director of Content]( [Susan Dziubinski] The Fed’s New GrooveThe Federal Reserve signaled this week what many market participants already knew: Inflation is here to stay, at least for a while. As a result, the Fed announced plans to double the pace of tapering, which likely means the end of asset purchases by early March. “We don’t think there will be anything holding the Fed back from rate hikes once tapering is complete,” says senior analyst [Eric Compton](. Our equity research team now expects three rate hikes in 2022 and three more in 2023. They also think that more-hawkish views for rates to top 2% or more in the next couple of years seem aggressive. Find out why [in Eric’s article](. Vanguard Smackdown One of the great things about working at Morningstar is that we’re not monolithic thinkers. True, most of us agree on what makes a good fund or a compelling stock. But that doesn’t mean we can’t disagree. Case in point: Two slightly different angles on Vanguard’s current business were published on Morningstar.com this week. On Tuesday, [John Rekenthaler]( asked, “[Has Vanguard Lost Its Way?]( John argues that as competitors with deeper pockets squeeze Vanguard’s business, the firm has aggressively pursued its personal advisory services. Fair enough--the money to keep the business running has to come from somewhere, and it isn’t going to come from low-cost index funds. But Vanguard has created concentrated actively managed funds and has promised private equity offerings to these clients, too--exclusively to these clients. And that seems to fly in the face of the simple, low-cost, democratic mantra that made Vanguard famous. “A Vanguard that offers private-equity investments and an advisory service that features exclusive funds isn’t Jack Bogle’s Vanguard,” he concludes. On Wednesday, Morningstar’s Vanguard specialist, [Alec Lucas]( painted a similar picture but drew a somewhat different conclusion. Alec [agrees]( that the personal advisor services (and its exclusive offerings) are a departure for Vanguard--and he thinks advice is Vanguard’s future. “I think that 10, 15 years from now, we'll be talking about Vanguard, the advice provider,” he says. Alec argues that Vanguard has democratized beta, and is now embarking on blending that with an advice context to help investors “do the right things for the right reasons at the right time.” Hmm, that sounds like something that Bogle might’ve actually gotten behind. Top Wide-Moat Stocks of the YearIn [my Our Picks column this week]( I took a look the 10 wide-moat stocks that’ve performed best in 2021. What company tops the list? Nvidia NVDA, with a remarkable 131% gain. In fact, all of the names on the list were pretty remarkable this year, returning in excess of 60% each (versus a still-good 22% for the broad market). Do any of these names have gas left in the tank for 2022? Funny you should ask--there is one stock on the list that is undervalued according to our metrics. [Read the article]( to find out what it is. Stock of the Week: Pfizer It was a pretty good week for Pfizer PFE. The wide-moat drug maker announced plans to acquire Arena Pharmaceuticals, nabbing an important immunology drug in the process that will help drive long-term growth. “With Pfizer gaining a windfall of cash from its COVID-19 vaccine (and from the likely upcoming launch of COVID-19 treatment Paxlovid) combined with some major patent losses after 2025 (cardiovascular drug Eliquis and cancer drug Ibrance), we view this deal as just one of several more likely tuck-in acquisitions Pfizer will target,” [says]( sector director [Damien Conover](. And speaking of those COVID-19 windfalls, there may be more to come: Also this week Pfizer released the final results of a previous study confirming that its [COVID-19 pill]( proved nearly 90% effective in preventing hospitalization and death among high-risk cohorts. Pfizer’s stock price looks a little overvalued to us today; we think shares are worth $45.50 apiece. Read more from Damien about Pfizer in “[Why Pfizer is Formidable]( Revisiting 2021’s Trendy TopicsThis week we revisited two of 2021’s trendiest topics. Morningstar portfolio strategist [Amy Arnott]( kicked things off by examining [the gap between Ark Innovation ETF’s reported total returns and investors’ actual results](. What did she find? That the average investor earned only about one fourth of ARKK’s returns during the past five years. “The difference between ARKK’s time- and dollar-weighted returns comes down to a simple reason: Most of its returns came when fewer shareholders were around to benefit from them,” explains Amy. Indeed, as frequently happens with volatile funds, investors are often late to the party. To wit: ARKK is down about 25% this year. In a similarly volatile vein, my colleague [Jakir Hossain]( revisited the performance of 16 of 2021’s hottest meme stocks, including GameStop GME and AMC AMC. All are trading more than 40% below their 52-week highs. One name, however, is a stunning 90% below its high; find out which one [in Jakir’s article](. This is the last issue of Smart Investor for a couple of weeks; you’ll receive your next issue on Friday, January 7. Though the newsletter (and its author!) are taking some time off, Morningstar’s analysts and specialists aren’t. In the next two weeks, they’ll recap the year in stocks, funds, and exchange-traded funds; highlight stock ideas for 2022 and beyond; provide rebalancing ideas for 2022; and even suggest some financial New Year’s resolutions. Happy holidays to you all, and cheers to a healthy and prosperous 2022! ADVERTISEMENT [media]( [media] Morningstar Specialists [ARKK: An Object Lesson in How Not To Invest]( [ARKK: An Object Lesson in How Not To Invest]( There's a massive gap between reported total returns and investors’ actual results. Amy C. Arnott, CFA [Vanguard in 2021--and Beyond]( [Vanguard in 2021--and Beyond]( Morningstar's Vanguard specialist recaps the year that was and talks about what may be in 2022. Alec Lucas, Ph.D., Susan Dziubinski [The 10 Best Wide-Moat Stocks of 2021]( [The 10 Best Wide-Moat Stocks of 2021]( Do any of this year’s top performers have gas left in the tank for 2022? Susan Dziubinski [The Real Reason to Index]( [The Real Reason to Index]( The key benefit is ease of use, not performance. John Rekenthaler [A Year-End Bucket To-Do List ]( [A Year-End Bucket To-Do List]( These seven steps tackle a lot of jobs: refilling cash, rebalancing, tax planning, and charitable giving. Christine Benz [ Fidelity in 2021 and Beyond]( [Fidelity in 2021 and Beyond]( Morningstar's Fidelity specialist recaps the year and looks forward to 2022. Robby Greengold, CFA, Susan Dziubinski [Has Vanguard Lost Its Way?]( [Has Vanguard Lost Its Way?]( Today's company isn't entirely what Jack Bogle built. John Rekenthaler [T. Rowe Price in 2021 and Beyond ]( [T. Rowe Price in 2021 and Beyond]( Morningstar's T. Rowe Price specialist reviews the fund flows, performance, and other news from 2021. Adam Sabban, CFA, Susan Dziubinski [Does the 4% Guideline Rest on a Flawed Assumption?]( [Does the 4% Guideline Rest on a Flawed Assumption?]( In-retirement spending is often incredibly variable rather than static. Christine Benz [Retiree Pitfalls to Avoid in a Lofty Market ]( [Retiree Pitfalls to Avoid in a Lofty Market]( Here are some tips for navigating withdrawal rates, risk capacity, and charitable giving. Christine Benz, Susan Dziubinski Popular This Week [These 3 Network Security Stocks Get a Moat Upgrade]( We think their excess returns on invested capital will endure, thanks in part to switching costs. Mark Cash [Inflation Is Getting Worse Before it Gets Better]( Despite the big rise in November CPI, the upward pressure on prices should unwind in 2022. Lauren Solberg [9 Undervalued Stocks in Top-Performing Sectors]( Energy, tech, and real estate are leading the market. Here are some names with room to run in 2022. Jakir Hossain [Where to Invest in Bonds for 2022]( Corporate bonds should continue to outperform amid strong economic growth and rising interest rates. Dave Sekera, CFA [4 Sneaky-Good Sector Funds]( Recent performance doesn't tell the whole story for these funds. Jack Shannon 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