Morningstar Advisor - Fall 2007 - (Page 16)

Gray Matters become more profitable, their share price will increase, thus allowing the investor with home bias to afford the higher cost of nontradable goods. Therefore, the amount of home bias should be proportional to the amount of non-tradable, home-produced goods and services that the investor plans to purchase in the future. Estimating the share of the economy related to non-tradable goods, however, is difficult in today’s global economy. For many products, the design of a component, its production, and the assembly of the product are all tasks that often take place in separate countries. Some tasks may be non-tradable, others not. Using the so-called openness ratio, however, we can take an approximate measure of the size of the tradable sector. The openness ratio is the sum of total imports and total exports, divided by gross national product. This ratio tells us which part of the economy is actually traded. The rest of the economy— the non-tradable sector—is less affected 30 by international competition. 25 It’s no surprise that the openness ratio of the 15 United States has been increasing over time, from 20% in 10 1980s to nearly 30% the today. U.S. firms and consumers have taken advantage of sourcing goods and services from wherever these can be produced more efficiently. Think about the last time you called a customer-support hotline. You’ll often talk to someone in India, but 20 years ago, few would have thought you could locate customer-support operations outside the United States. As a result, there is a decreasing justification for home bias, because fewer and fewer products are fully non-tradable. 20 Less Local: The U.S. openness rate has been steadily rising, meaning that more of the economy is affected by foreign competition. 30% 20 1947 1962 1977 1992 2007 No one allocation is applicable to every investor, but clearly an international weighting lies somewhere between today’s conventional 20% weighting and the 52% stake you’d have if you wanted to mirror the world stock market. Some efficient frontier analysis suggests that about one third of the equity part of a U.S. investor’s portfolio should be overseas, including both developed and emerging markets. 31-Mar-1947 30-Mar-1962 31-Mar-1977 31-Mar-1992 30-Mar-2007 Attention all optimists, your glass just got 7% FULLER. 28-Sep-1962 29-Mar-1963 5 31-Dec-1986 31-Mar-1998 30-Sep-1987 30-Jun-1998 30-Jun-1988 31-Dec-2001 30-Sep-1988 31-Dec-1990 30-Jun-2004 30-Jun-1971 30-Sep-1971 31-Dec-1971 29-Dec-1972 30-Sep-1986 30-Jun-1997 30-Jun-194729-Mar-195730-Dec-1966 30-Jun-197731-Mar-198731-Dec-1996 29-Jun-2007 30-Sep-194728-Jun-195731-Mar-1967 30-Sep-197730-Jun-198731-Mar-1997 31-Dec-194730-Sep-195730-Jun-1967 31-Mar-197831-Dec-198730-Sep-1997 31-Mar-194831-Dec-195729-Sep-1967 30-Jun-197831-Mar-198831-Dec-1997 30-Jun-194831-Mar-195829-Dec-1967 30-Mar-197930-Dec-198830-Sep-1998 30-Sep-194830-Jun-195829-Mar-1968 29-Jun-197931-Mar-198931-Dec-1998 31-Dec-194830-Sep-195828-Jun-1968 28-Sep-197930-Jun-198931-Mar-1999 31-Mar-194931-Dec-195830-Sep-1968 31-Dec-197929-Sep-198930-Jun-1999 30-Jun-194931-Mar-195931-Dec-1968 31-Mar-198029-Dec-198930-Sep-1999 30-Sep-194930-Jun-195931-Mar-1969 30-Jun-198030-Mar-199031-Mar-2000 30-Dec-194930-Sep-195930-Jun-1969 30-Sep-198029-Jun-1990 30-Jun-2000 31-Mar-195031-Dec-195930-Sep-1969 31-Dec-198028-Sep-199029-Sep-2000 30-Jun-195031-Mar-196031-Dec-1969 30-Jun-198129-Mar-199129-Dec-2000 29-Sep-195030-Jun-196031-Mar-1970 30-Sep-198128-Jun-199130-Mar-2001 29-Dec-195030-Sep-196030-Jun-1970 31-Dec-198130-Sep-199129-Jun-2001 30-Mar-195130-Dec-196030-Sep-1970 31-Mar-198231-Dec-199128-Sep-2001 29-Jun-195131-Mar-196131-Dec-1970 30-Jun-1982 30-Jun-199229-Mar-2002 28-Sep-195130-Jun-196131-Mar-1971 30-Sep-198230-Sep-199228-Jun-2002 31-Dec-1951 29-Jun-1962 30-Jun-1972 31-Dec-198231-Dec-199230-Sep-2002 31-Mar-1952 31-Dec-196229-Sep-1972 31-Mar-198331-Mar-199331-Dec-2002 30-Jun-1952 28-Jun-196330-Mar-1973 30-Jun-1983 30-Jun-199331-Mar-2003 30-Sep-1952 30-Sep-196329-Jun-1973 30-Sep-198330-Sep-199330-Jun-2003 31-Dec-1952 31-Dec-196328-Sep-197330-Dec-198331-Dec-199330-Sep-2003 31-Mar-1953 31-Mar-196431-Dec-197330-Mar-198431-Mar-199431-Dec-2003 30-Jun-1953 30-Jun-196429-Mar-1974 29-Jun-1984 30-Jun-199431-Mar-2004 30-Sep-1953 30-Sep-196428-Jun-1974 28-Sep-198430-Dec-199430-Sep-2004 31-Dec-1953 31-Dec-196430-Sep-197431-Dec-198431-Mar-199531-Mar-2005 31-Mar-1954 31-Mar-196531-Dec-197429-Mar-1985 30-Jun-1995 30-Jun-2005 30-Jun-1954 30-Jun-1965 30-Jun-1975 28-Jun-1985 29-Sep-199530-Sep-2005 30-Sep-1954 30-Sep-196530-Sep-197530-Sep-198529-Dec-1995 30-Jun-2006 31-Dec-1954 31-Dec-196531-Dec-197531-Dec-198529-Mar-1996 31-Mar-1955 31-Mar-196631-Mar-197631-Mar-1986 28-Jun-1996 30-Jun-1955 30-Jun-196630-Jun-1976 30-Jun-1986 30-Sep-1996 30-Sep-1955 30-Sep-1966 30-Dec-1955 30-Mar-1956 29-Jun-1956 28-Sep-1956 31-Dec-1956 29-Dec-2006 31-Dec-1999 31-Dec-2004 30-Dec-2005 31-Mar-2006 30-Sep-1994 29-Sep-2006 30-Dec-1977 29-Sep-1978 29-Dec-1978 31-Mar-1981 30-Sep-1976 31-Dec-1976 29-Sep-1961 31-Mar-1972 29-Dec-1961 31-Mar-1975 When evaluating the purchase of a variable annuity, your clients should be aware that variable annuities are long-term investment vehicles designed for retirement purposes and will fluctuate in value; annuities have limitations; and investing involves market risk, including possible loss of principal. May not be available in all states. Options may be available at an additional cost. Both the variable annuity prospectus and underlying fund prospectuses can be obtained by writing to Nationwide Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Your clients should carefully consider the fund’s investment objectives, risks, charges and expenses. M7920-13_16x4.5.indd 1 16 REVISED – DESTRO Morningstar Advisor Fall 2007

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

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.