Interest-Rate Risk, Must-Own Stocks, and Emerging-Markets Fund Woes

And Starbucks in transition. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_smartinvestor&utm_content=35118&elqTrackId=dae5839d02f546268f940978190c47c7&elq=8e36df1d720640379102103ccfb78773&elqaid=35118&elqat=1&elqCampaignId=16358) [Smart Investor] Smart Investor with [Susan Dziubinski, Director of Content]( [Susan Dziubinski] Managing Interest-Rate Risk[After much telegraphing]( that it would do so, the Federal Reserve raised interest rates this week by 25 basis points--and [signaled that there are more to come](. Of course, the stock and bond markets have already priced in several interest-rate hikes in 2022. That’s at least partly why [growth stocks have struggled]( as much as they have this year and why high-quality bonds are in the red for the year to date. But perhaps the Fed’s action is just the kick in the pants investors need to examine the interest-rate risk of their portfolios. My colleague [Christine Benz]( offers some [tips for figuring out whether your portfolio is ready for rising interest rates](. [Ben Johnson]( explains whether you should be worried about [how your dividend-paying stocks may perform]( in a rising-rate climate. And put your bond funds through a [duration stress test]( to see how they may respond to ongoing rate hikes. 8 Must-Own Stocks For some things in life, we seek stamps of approval. Maybe we've built a proposal for a new product idea, hopeful that upper management will put together a small team to explore it further. Or we make a new recipe and are encouraged when our often-mum teenagers say how good it is. Or we decide to use a certain contractor for our bathroom remodel because two neighbors had good experiences--and now have stunning bathrooms. Similarly in investing, knowing that a well-respected money manager owns a stock that you own--or a stock that you’re eyeing--can serve as a stamp of approval. So in my Our Picks column this week, I turned to some of our favorite concentrated-fund managers--seven in all, covering the growth-to-value spectrum--for stock ideas. Specifically, I focused on stocks that at least three of the managers owned; eight stocks made the cut. Six of the seven managers own Alphabet GOOGL, which we think is undervalued today. [Find out]( the other seven stocks these managers have in common. Emerging-Market Fund Woes “Investors in emerging-markets stock funds have been hit with a one-two punch,” [wrote]( my colleagues [Katherine Lynch]( and [Lauren Solberg]( in a column this week. Punch one: the [collapse]( of the Russian market after Russia invaded Ukraine. Punch two: freefalling Chinese stocks amid a [growing dispute]( between China and U.S. regulators. As I write this, diversified emerging-markets stock funds are down more than 16% this year. (Of course, given the extreme market volatility, they may be up 16% by the time you’re reading this!) Are emerging-markets stock funds worth the risk? My colleague [John Rekenthaler]( thinks not. [John has pointed out]( that emerging-markets stocks have lagged over most time periods, offer less diversification benefits than they have in the past, and have “suspect” expected returns. “It is not clear that buying a package of stocks from countries labeled as ‘emerging’ makes more sense than, say, buying one from countries whose names begin with the letter B,” quips John. He instead suggests sticking with wider-ranging funds where managers can decide where the risk might be worth taking; emerging markets aren’t an asset class all their own, he concludes. Those who beg to differ should review [this]( article from Morningstar senior analyst [Dan Sotiroff](. Dan runs through the various risks inherent in emerging-markets stock investing and suggests how to mitigate them. Stock of the Week: Starbucks Starbucks SBUX CEO Kevin Johnson announced his retirement effective April 4; former CEO Howard Schultz will temporarily retake the reins of the coffee chain until a long-term successor is named, most likely by fall, according to the firm. Expecting strategic continuity, we maintained our $106 [fair value estimate]( and Exemplary [Morningstar Capital Allocation Rating]( of the firm, [said]( analyst [Sean Dunlop](. “Starbucks' incoming CEO will have plenty on their plate, with sharp increases in commodity and labor costs figuring to pressure operating margins through at least the next two years,” he noted. “The organized labor movement also figures to attract management attention, while periodic operating disruptions in China add another degree of execution risk.” Shares rallied on the news, but the [wide-moat]( stock still looks undervalued to us as of this writing. Another Plug for Morningstar’s Tax & IRA Guide Regular Smart Investor readers are no doubt tired of my promotion of [Morningstar’s 2022 Tax and IRA Guide](. But I also suspect that many of you still have some dangling tax issues. For some, it may be getting your 2021 taxes filed. For others, it may be actually investing that IRA that you funded for 2021. For still others, it might be weighing whether to pursue a [backdoor Roth IRA](. Sound like you? If yes, check out our guide for, er, guidance. ADVERTISEMENT [media]( [media] Morningstar Specialists [13 Fantastic Funds for Your IRA]( [13 Fantastic Funds for Your IRA]( I've got you covered from high risk to low risk. Russel Kinnel [2022 Tax Traps to Avoid]( [2022 Tax Traps to Avoid]( Take care--because often there are no takesies backsies. Christine Benz [Backdoor Roth IRA? Avoid These 5 Mistakes]( [Backdoor Roth IRA? Avoid These 5 Mistakes]( These errors can jack up tax--and opportunity--costs. Christine Benz [Dividend Investors: Don't Sweat Rising Interest Rates]( [Dividend Investors: Don't Sweat Rising Interest Rates]( After the Fed's interest rate hike, owning quality companies that regularly return cash to shareholders remains a solid strategy. Ben Johnson, CFA [Let's Hope New Texas Law Turns Out to Be 'All Hat, No Cattle']( [Let's Hope New Texas Law Turns Out to Be 'All Hat, No Cattle']( Blacklisting climate-aware asset managers adds risk to worker retirement savings. Jon Hale, Ph.D., CFA [Backdoor IRA Pitfalls to Avoid]( [Backdoor IRA Pitfalls to Avoid]( Expert Ed Slott describes what you need to know if you're considering a backdoor Roth contribution. Christine Benz [8 Stocks to Own]( [8 Stocks to Own]( These names are widely held among some of our favorite concentrated-fund managers. Susan Dziubinski [The Struggles of Quantitative Investing]( [The Struggles of Quantitative Investing]( When being smart and skilled is not enough. John Rekenthaler [What Rising Inflation Means for Your Portfolio]( [What Rising Inflation Means for Your Portfolio]( Continued higher inflation would have far-reaching implications for portfolio diversification, but there’s no need to panic. Amy C. Arnott, CFA [Finding the Right ESG Funds for Your Portfolio, Part 2]( [Finding the Right ESG Funds for Your Portfolio, Part 2]( By taking the time to explore the different approaches to sustainable investing, you can find the right investments for your situation. Leslie Norton [How to Invest Your Funny Money]( [How to Invest Your Funny Money]( Playing with the funds set aside for discretionary use still requires planning and discipline. Ben Johnson, CFA [Should You Tap Your Retirement Account to Buy a Home? ]( [Should You Tap Your Retirement Account to Buy a Home?]( We run down the taxes, penalties, and other risks of using retirement assets for a home purchase. Christine Benz Popular This Week [8 Stocks That Are High in Quality, Cheap in Price]( As the market stays in correction territory, high-quality undervalued stocks including Biogen and Salesforce look poised to gain. Lauren Solberg [What a Fed Rate Liftoff Means for Stocks]( Historically, stocks have done well in the months after an initial rate increase. Sandy Ward, Lauren Solberg [Are Delistings of Chinese Stocks on Their Way?]( The SEC has singled out Yum China, four others for potential delisting in 2024 over accounting standards. Kate Lin [Amid Rising Rates, These Equity-Income Funds Offer a Lot to Like]( These equity-income strategies tend to hold up better in market selloffs while providing a reasonable income stream. David Carey [Size Concerns Downgrade 2 Fidelity Fund Ratings]( Here are some ratings highlights from February. David Carey, Anthony Thorn 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](. © 2022 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602