Morningstar Advisor - Fall 2007 - 17

That’s a useful starting point, as are some target-retirement funds. These offerings are designed by fund companies as one-stop investment solutions and often reflect a considerable amount of research into what’s the ideal international allocation. While some firms, such as T. Rowe Price and Fidelity, opt with the traditional 20% to 25% foreign weighting, others are more adventurous. Putnam and AllianceBernstein have more than 33% of their stock holdings in foreign stocks. Either way, as an increasing amount of the U.S. economy is affected by international competition, investors should weight U.S. stocks less and up their stakes in international stocks. Michele Gambera is a senior research consultant and chief economist with Ibbotson Associates. Christopher Davis, a mutual fund analyst with Morningstar, contributed to this article. Got a tough quantitative problem? Can’t get your head around a complex investing concept? In every issue, Morningstar’s research team will tackle a question from readers. E-mail your queries to magazine_editor@morningstar.com Few Mutual Funds Exhibit Serial Correlation Q: How much serial correlation is there in mutual fund returns? A: In the Spring 2007 issue of the magazine, a co-author and I contributed an article for Gray Matters on hedge fund returns, (“Less Alpha and More Beta Than Meets the Eye”). We pointed out that because many hedge funds hold illiquid or difficult-to-price securities, their returns tend to be “smoothed,” so that conventional statistics tend to understate hedge funds’ risks and overstate their risk-adjusted returns. We said that smoothing leads to serial correlation of hedge fund returns and that a significant minority of the funds that we looked at, close to one out of five, had a significantly high five-year serial correlation coefficient of least 30%, indicating that risk is understated. Responding to this finding, advisor Ward Waltman, of Ashland, Va., asks: LIFE COMES AT YOU FAST ® SM ® Nationwide now offers several annuities with a 7% roll-up option for 10 years. We call it a Sevolution . It’s one of our simpler solutions that arms you with what your clients are always asking for – more. To ﬁnd out more, call 1-800-321-6064 or visit nationwide.com/sevolution The prospectuses contain this and other important information. Annuities are issued by Nationwide Life Insurance Company, Columbus, Ohio. The general distributor is Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. • Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May lose value Broker/Dealer Use Only – Not for Use With The Public. Nationwide, the Nationwide framemark, Life Comes at You Fast and On Your Side are federally registered service marks of Nationwide Mutual Insurance Company. Sevolution is a service mark of Nationwide Mutual Insurance Company. © 2007 Nationwide Financial Services, Inc. All rights reserved. , NFV-0423AO 9/13/07 4:45:06 PM Y OLD MATERIALS MorningstarAdvisor.com 17

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Morningstar Advisor - Fall 2007

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