. >>> morningstar out with a report explaining why it's become more difficult for u.s. active equity managers to outperform their benchmarks. what now, leslie >> sara, as you know, it's only gotten more difficult over time to pete tbeat the market. the question is whether it will ever get any easier. in the last two decades, fewer and fewer managers are beating the relevant benchmarks. the so-called success rate was one out of every six in 2018 that compares with nearly 50% in the early 2000s. so is this a structural phenomenon or cyclical can it ever be reversed? that new report says, no, it really can't morningstar points to research on greater competition with marginal investors leaving the field leaving behind a more skilled field of investors to scrap over every morse sel of excess return. as you can see, the chart shows the dispersion between different styles the best performing strategy compared with the worst performing as you can see it gets more crunched up over time, meaning that tilting outside of your focus, for example, a large cap manager picking up some

hi, kate >> hey, wilf it's all about the avocado morningstar says names like chipotle which closed down over 2% and panera which is of course now private may be pressured by this new round of tariffs. chipotle told cnbc overt last year our supply chain team has been working to diversify. our produce supply consistent with our food with integrity principles, if the announced tariffs are enacted they would negatively impact our costs and we are monitoring the situation and working with our suppliers to minimize the impact morningstar also called out smaller chains chuy's holdings and fiesta restaurant group, which may be less agile and able to diversify their supply chains if and when these tariffs of course come to fruition, guys back over to you >> kate, thank you mexico's a huge exporter of agricultural products to the u.s. aditi roy is here. lucky us with that angle. and it's not just avocados >> avocados are a big part of it as kate mentioned. but there's also a lot more. the u.s. brings in more agriculture products from mexico than from any other country. total u.s. agricultural imp

joining us to talk about this is damien conover, he's mornings r morningstar's equity analyst following the stock. give me your take on this news this morning that does have the stock down a good deal >> when you see the stock down this much, you always have an initial reaction, there must be something fundamentally wrong here but what i think is happening is this recall by j&j has stoked the fears over all the litigation that's outstanding on j&j right now related to the talcum powder. however, from our view, we haven't changed our fair value we think this is an overreaction by the market and a good opportunity for investors to get into the stock >> i mean, this company has legal expenses that dwarf pretty much any other companies, i would imagine, given not just talc, but opioids and other things, as well, as you well know, damien 15,000 plaintiffs alone here in terms of this charge that talc powder causes cancer, essentially. why aren't you, as an analyst, following the company concerned about the possibility that they could be facing significant losses in terms of at least versus th

break down those numbers, our senior research analyst at susquehanna and david schwartz an analyst at morningstar. sam i'll turn to you gross margin is up 20 basis points to 44%. >> they did say there would be more margin pressure in the quarter slightly more than they anticipated. your first conversation about china sounds like china of better than people thought they were expecting a little bit of decel >> david here, they talk about average selling price increase as well as expansion but higher product cost due primarily to those north american tariffs does that surprise you did you work that through in your model? >> i think that's a very good number my number was at 44.1% 44.0 is close. i think they had some one time issues in the quarter including the tariffs and possibly the demonstrations in hong kong and other issues in china that may have had a small impact on the grors mar gross margin >> overall clearly everything is still going very right for this company. is there a question just to where the stock had got to and the valuation? is that why it's slipping? >> it's slipping a little bi

. >> reporter: according to morningstar 48% of active u.s. stock funds beat passive indexes in the year through june that's up 37% year-over-year but passive vehicles are still becoming increasingly dominant passive is now taking over almost half of the stock market according to bank of america and that's caused hedge funds to build up the credit side of their business cio of sculptor said that's why they are growing droid be more than half of their $30 billion in asset management. >> on the credit side that's hard to replicate. within the world of opportunistic credit there's not an etf that can work a company through liquidation of assets. with credit we focus on what we do, hopefully we'll be able to have an edge in for a long time. >> reporter: sculptor is up 10% and seen inflows in to credit and outflow from their multi-strategy fund. >> how does this relate in terms of performance we started to see good enough performance to justify the flows? >> on the credit side of the business, absolutely and on the real estate business absolutely m

that's according to data from morningstar. that's the most in three years meantime, passive funds are growing in market share. those are up 2% from last year mike, the read through here? people are just looking for lower cost options >> and they have been for a while. so many structural reasons for it to continue i think it would probably take a major market break and a rethinking of exactly, you know, what you want your portfolio to do for you it has the benefit of transparency, of low cost. you have the financial services industry trying to gather assets and financial advisers trying to keep more of the lower fees for themselves, therefore lower costs, passive products are the way to do that so i think it's a very difficult -- it's a very difficult trend to fight, except by tbecoming more transparent in active strategy and maybe having competition, which is already happening. >> chris, i bet you've got a strong view on this. >> i do, very much so. we're 70% passive in the usa, 50% passive in non-u.s for us, we can operate th

. >> morningstar 2017 fund manager of the year tells us what she's watching in the global markets >> plus we'll head to the floor ad'sakonhe securities to get a trer te t sell-off. he'll trade the close just minutes before the bell rings. back after thi >>> welcome back our next guest says trade war tensions are actually creating opportunities in some cyclical stocks sarah keterror from causeway capital joins us with more on that some of these opportunities you're seeing, though, they're overseas, is that right? >> that's correct. measured as the isa index saw a 20-year valuation low versus the u.s. market. there are plenty of opportunities abroad >> and european banks top that list i guess we say this every time you come on. if you look at deutsche bank they have continued lower throughout the time you've called for this sector >> we didn't buy them all but there are some with very committed managements working tirelessly to streamline their businesses like unit credit in italy an come out of the banking system, and it will because there's no other way the banks could then lend and

for more let's bring in ali from morni morningstar and ed lee is it user growth that wall street is -- >> i think user growth clearly they stemmed the bleeding from a few quarters ago and are doing better and wanted to point out what julia was getting at discover platform is where they're shining because ultimately, you know, in order to generate the added ad dollars you need people to stick around and look at stuff beyond snapping photos and accepting to each other that's the key measure i think from what i'm seeing here, audience watching content has grown 35% year over year that's pretty significant. so once upon a time snap liked to call itself a camera company. it's a media company >> not during the ipo race. >> what's your take, ali >> i think they're impressive. the dau growth was certainly imblessive and, of course, as you can see by the reaction pretty surprising. that growth acceleration may not last long. their guidance is pretty impressive but the reason their growth may not accelerate that long, mainly it was driven by the android revamp so that's not going to continue an

starbucks locations are company owned while another brands' franchise which analysts from morningstar and btig say means that the coffee giant could feel more of an impact if preferences in china were to change due to these trade tensions starbucks of course is betting big on china, even calling the country its second home market executives have said in the past that the brand is well positioned to withstand ongoing developments due to its 20-year history operating there. domino and is papa john's all have a few hundred locations between them in china so there's less risk of an impact there back over to you >> kate, thank you increased tariffs on american liquefied natural gas could have a big mpact on energy stocks ylan mui with the details on that angle in washington ylan >> sara, president trump will be speaking at a new lng export terminal in louisiana any minute now, and there has just been a massive amount of investment in this sector. the terminal that trump is visiting cost $10 billion and created 6500 jobs. there's an estimated total of $50 billion in projects either planned

. >> for more, let's bring in equity research analyst for morningstar and jerrod karcantoy eric, what's your take on this appointment? >> i think this is a home run for wells fargo. and honestly, we didn't expect them to pull something off of this magnitude we were advising investors, you know, you really have to be prepared for alan parker to keep the job with how long it's taking and issues around payouts, things like that. to get someone with this caliber, this kind of experience and reputation, i would say it's a home run for wells >> jerrod, do you degree >> i would it's a solid trouble. you know, charlie left jpmorgan unceremoniously, right after the financial crisis did a good job at visa never really got on track at bank of new york a solid hire, no doubt about it. to go with somebody from the outside of his caliber is positive rather than having to go with an interim ceo and make him permanent. but he's gotlift i ing to do, a lot of things that need to be done to get wells back on track. >> wells fargo has dealt with a series of scandals and lawsuits. perhaps it will take some

joining us now to talk about the proposed fiat chrysler and renault merger, richard hilger, morningstar analyst. thank you for joining us is this purely a defensive cost-cutting scale move or are there strategic reasons one company has that the other does not? >> i think it's a combination. by the way, thanks for having me today. the combination of the two would provide significant economies of scale especially in the small car area where profits are none or slim as well as fiat chrysler having been a laggard in electric vehicle production. this would give them some valuable technology from renault, which has been one of the leaders in producing electric vehicles. >> john, do you have any thoughts on the deal and how you would be playing it? >> i think it's a trend of high capital intensive cyclical industries merging we saw in the 2000s the rails merged the last ten years we've seen the airlines merge this could be the start of the autos starting to merge. and i take more of the side of it's two smaller players merging together to survive in a very changing cyclical auto landscape as m

locations but likely not enough to feel a major impact on this news today according to analysts from morningstar and btig starbucks, though, also owns its locations in china whereas mcdonald's and others franchise their locations. analysts say the coffee giant o'could stand to feel the impact more if consumer sentiment shifts in china but we're not really there quite yet starbucks did have a 3% com np china. back to you. >> kate rogers winding down the trading session. right now we have less than five minutes to go. we'll have the closing countdown next >> but first let's head to bertha coombs for a check-in at the nasdaq see what's moving there. bertha >> we talked a lot about the large caps with apple today looking like it's going to have a 6% plunge but it's the small caps that are taking it on the chin as well the russell 2000 back in correction materiality, down nearly 12% from its high and it hasn't put in a new high this year like the other major indices. among the losers a lot of companies trying to expand in china like worldwide wolverine, it wanted to sell more merrill and they just --