Volatility ‘A Way of Life’ in 2013: Morningstar

Fiscal prognosticators everywhere have been busy trying to see ahead into the coming year. They’ve been doing their best to extrapolate market activity and financial hazards or hallelujahs, based on an iffy climate that includes debt woes in Europe, slowing economies all over the globe, and the possibility of fiscal cliff-jumping at home. Morningstar is no exception, and it has offered a view of the coming year that takes optimism with a grain of salt but doesn’t appear to be all gloom and doom, either.

One thing Morningstar doesn’t see is smooth sailing ahead. In fact, it regards the mostly optimistic views of others looking ahead as “a little scary.” Instead, it says that market volatility “will be a way of life in 2013” thanks not just to Europe’s efforts to conquer the debt crisis and China’s possible slowdown but a now-you-see-it-now-you-don’t U.S. economy that seems to take two steps forward and one step back.

Volatility, it adds, points toward a heightened necessity for stock picking, rather than placing one’s trust in market correlation. With the market close to fair value, the view that “all that mattered was getting the macro calls right and positioning your portfolio accordingly” is no longer the way to go. Picking the right stocks, instead of looking for offsets, becomes paramount.

Opportunity beckons, says Morningstar, in “the ranks of wide- and narrow-moat companies, because we believe these firms will earn excess returns for longer periods of time than their no-moat counterparts.” Among its top-rated selections are a number of European firms, despite the debt crisis; energy companies; and a few large global companies thrown in for good measure, like Apple (AAPL) and Rio Tinto (RIO).