Morningstar Magazine - August/September 2017 - 56
Investors
Moats in Practice
Analysts discuss how they incorporate
the moat methodology into their work.
Undiscovered Manager
62
A Happy Medium
66
Opportunities in Immuno-Oncology
Sector Snapshot: Pharmaceuticals
MORNINGSTAR CONVERSATION
Elizabeth Collins
Sector Rap
69
70
User Profile
Re-Energized by Sustainability
Determining whether a company possesses
an economic moat, or a sustainable competitive
advantage, to hold its competitors at bay is
an essential component of Morningstar's approach
to equity research. As investors, we want
to hold shares in great businesses that can fend
off the competition and earn high returns
on capital for many years to come. But moats
alone do not make for a compelling investing story.
The stock must be selling at a discount, too.
Analysts across Morningstar use the moat
methodology in their research. For this
Morningstar Conversation, we talked with three
analysts, each of whom has a different role at
Morningstar, to see how they use moats in
their work. Andrew Lane is a senior equity analyst
who covers basic materials with Morningstar
Research Services. He is also the chairman of the
economic moat committee in equity research.
Mike Hodel is a former equity analyst who
is now a portfolio manager with Morningstar
Investment Management. Kevin McDevitt
is a senior fund analyst in manager research
with Morningstar Research Services. Our
discussion took place on June 27 and has been
edited for clarity and length.
Elizabeth Collins: To start, how does the concept
of economic moats have an impact on your work?
Andrew Lane: I am the chairman of the economic
moat committee, and I oversee the application
of our moat methodology across the roughly
1,500 companies that Morningstar covers. Our goal
is to make sure that our methodology is being
applied consistently by the analysts and that it is
communicated effectively to our clients.
Mike Hodel: As a portfolio manager, I take the
work that Morningstar's equity analysts
produce-the moat ratings, fair value estimates-
and translate that into an investment strategy.
Elizabeth Collins is director of equity research
with Morningstar Research Services.
56
Morningstar August/September 2017
Kevin McDevitt: I primarily talk with equityfund managers. Moats are a big part of
how we evaluate portfolios and also how we frame
the discussion when we're talking to portfolio
managers and evaluating what they do.
In a somewhat indirect way, that feeds into our
analyst ratings on individual funds. It's very
interesting on my end, because we're the
beneficiaries of the work the equity analysts are
doing in terms of assigning moat ratings and
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Contents
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