Morningstar Advisor - Fall 2007 - (Page 13)

Investors Flock to LowExpense Funds Mutual fund investors overwhelmingly prefer to invest in stock funds offering low expense ratios, Morningstar research analyst Preethi Parmar says. As of August, the median expense ratio for domestic stock funds was 1.09. (Median expense ratios were computed for the oldest share class of all domestic stock funds in Morningstar’s open-end database.) Investors pooled about 84% of net assets in funds with expenses lower than the median, leaving a small portion to higher-expense funds. Morningstar research has shown that fund fees are one of the most reliable predictors of performance. The lower the expense ratio, the more likely it is that a fund will outperform over the long haul. Foreign Operations: These U.S.-based firms get much of their revenues overseas. Company Industry Estimated % Revenue from Outside U.S. Intel Corp INTC Coca-Cola KO ExxonMobil Corp XOM Schlumberger SLB McDonald’s Corp MCD Hewlett-Packard HPQ 3M Company MMM United Technologies UTX Semiconductors Beverage Mfg. Oil & Gas Oil & Gas Serv. Restaurants Computer Equip. Diversified Diversified 79.0 72.3 69.0 67.0 65.5 65.0 61.4 60.0 60.0 58.0 57.0 57.0 53.0 53.0 52.0 49.0 48.0 48.0 E.I. du Pont de Nemours DD Chemicals Altria Group MO Procter & Gamble PG IBM IBM Caterpillar CAT Tobacco Consumer Prods Computer Equip. Const. Machinery Insurance (General) Electric Utilities Insurance (Prop.) Business App. Chemicals Briefs Investors Flock to Low-Expense Funds 13 The Foreign Side of the S&P 500 13 Get ‘Em While They’re Cheap 14 Few Funds Ace Morningstar’s Stewardship Test 14 Investors Can Bank on Some Bargains 14 Schneider’s Rocky Summer 15 The Foreign Side of the S&P 500 Digging into the financials of the S&P 500 Index’s holdings, Morningstar senior analyst Michael Breen found a few surprises about the extent of its constituents’ foreign operations. We all knew that such U.S.-based firms as Coca-Cola KO and McDonald’s MCD have a big global presence. But chipmaker Intel INTC garnering nearly 80% of its sales abroad was news to us. Ditto for computer maker Hewlett-Packard HPQ: It hauls in two thirds of its revenue abroad. Labeling firms domestic based on their U.S. home address isn’t always an accurate indicator of their economic reality. The effect on a portfolio can be meaningful, so advisors and investors need to dig beneath the surface to understand the true geographic makeup of the firms a fund holds. (For more on this topic, see our Spotlight section on page 26.) The table shows a sample of firms with prominent positions in the S&P 500 that also have with big foreign-revenue streams. Aon Corp. AOC FPL Group FPL American Intl Group AIG Oracle Corp ORCL Praxair PX Google GOOG Abbott Laboratories ABT American Express AXP News Corp NWS.A General Motors Corp GM Symantec Corp SYMC Pfizer PFE General Electric Comp GE Bristol-Myers Squibb BMY Cisco Systems CSCO Johnson & Johnson JNJ Eli Lilly & Company LLY eBay, Inc. EBAY Yum Brands YUM Apple AAPL Merck & Co. MRK Boeing Co BA PepsiCo PEP Merrill Lynch & Co MER Medtronic MDT Business/Online Serv. 47.0 Drugs Finance Media Conglom. Auto Makers Systems & Security Drugs Electric Equip. Drugs Data Networking Drugs Drugs Online Retail Restaurants Computer Equip. Drugs 47.0 47.0 47.0 47.0 47.0 46.6 46.0 46.0 45.0 45.0 45.0 43.0 43.0 40.0 39.0 Articles Investors Should Adjust Their Home Bias 15 Michele Gambera Q&A: Few Mutual Funds Exhibit Serial Correlation 17 Paul D. Kaplan Valuating ETFs, the Equity Analyst’s Way 20 Jeffrey Ptak Aerospace & Defense 38.0 Beverage Mfg. Securities Medical Equipment 37.0 37.0 36.0 MorningstarAdvisor.com 13 http://MorningstarAdvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Fall 2007

Morningstar Advisor Fall 2007 Features Departments Letter from the Editor Inbox 10 Years After: Developing Markets Make Progress Research Briefs Investors Should Adjust Their Home Bias Few Mutual Funds Exhibit Serial Correlation Valuating ETFs, the Equity Analyst's Way It’s All About Location See the World (Differently) The Return of the Global Flexible Investor Map of International Value Sound as a Loonie? Fair Exchange In Their Own Worlds A Good Read Putting Their Heads Together Buying Protection Scoping Out Easy-to-Use Funds Finding Good Stewards Consumer Firms Go Global Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities New at Morningstar The Whole Wide World

Morningstar Advisor - Fall 2007

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