Volatility Ahead

When it comes to the market’s expected performance in 2013, Morningstar doesn’t see smooth sailing ahead. Instead, the research group 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, the firm 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).