Morningstar Advisor - Fall 2007 - (Page 34)

Spotlight: International Ten years from now, no one will say a fund is a ‘domestic fund’. Charles Royce, President and Chief Investment Officer, Royce & Associates hamstring ourselves?” William H. Browne, a managing director of Tweedy, Browne, said. Longleaf Partners jumps boundaries from both directions. Its Longleaf Partners Fund LLPFX stashes a sizable amount of assets in foreign stocks, while Longleaf Partners International LLINX has a substantial U.S. component. When asked by Morningstar why Dell DELL, the top holding of Longleaf Partners Fund, also is the biggest position in Longleaf Partners International, comanager Mason Hawkins gave two reasons. First, he said, Longleaf sees nearly half the intrinsic value of Dell coming from its non-U.S. operations, so he’s not willing to simply slap a “U.S.” label on Dell and be done with it. Second, he said, considering the strength of its management, its business prospects, and what Longleaf considers as its bargain price, Dell was one of the best opportunities he and his colleagues had come across in years. Therefore, he argued, it would have been “irresponsible” to withhold that stock from the shareholders of Longleaf International. Some top-notch firms have gone further, coming out with new funds boasting fully global mandates. Oakmark Global Select OAKWX pairs domestic manager Bill Nygren with foreign stock-picker David Herro. Calamos Global Equity CAGEX lets that firm’s talented managers look at opportunities all over the world, but with a smaller asset base (so far) than Calamos’ older funds. Marsico Global MGLBX can make the same claims, and at a cheaper cost. Two more examples: Thornburg Global Opportunities THOAX and Harbor Global Value HIGVX, both of which came out in 2006. Finally, there’s Tweedy, Browne again. In September, the firm launched a new dividend-focused fund with a global mandate, the Worldwide High Dividend Yield Value fund TBHDX. Not Just Another Gimmick The loosening of geographic limits makes sense. After all, any list of the world’s Scott Burns, Senior Analyst SHENZHEN It’s hard to believe that Shenzhen, a modern city of 20 million people on the mainland opposite Hong Kong, was an impoverished fishing village of 25,000 in the early 1980s. Now, the city is emblematic of the rapid development that typifies most major Chinese cities. Boasting subways, shopping malls, office towers, and freeways, much of Shenzhen would not look out of place in the U.S. Shenzhen’s meteoric growth has been equally matched by share prices for Chinese-domiciled firms. The Shanghai stock market is up more than 200% so far this year, making it awfully tough to find bargains. Although there’s no questioning the growth potential of China, there are structural imbalances in the local market here that are driving up asset prices in the stock market and the real estate market well beyond what we think the fundamentals support. That said, the stock market is as volatile as a small-cap stock fund, so it’s worth your while to keep some names on your watch list in case the market pulls back. One of our favorite Chinese companies is China Life Insurance LFC. Not only is this company growing its book value by 30% a year, it also keeps 20% of its float invested in the Chinese stock market, giving Western investors one of the cheapest ways to access the otherwise closed Chinese market. We’re also big fans of China Mobile CHL, the country’s largest cell phone service provider. China Mobile has an amazing 330 million subscribers and has been signing up 5 million new subscribers per month. This kind of subscriber growth isn’t expected to last forever, but we expect China Mobile to be able to raise rates and sell more services as China’s per capita income rises. There are plenty of other ways to play China without having to buy Chinese stocks. Commodity companies such as Alcoa AA and firms that make mining and construction equipment such as Terex TEX are great indirect ways to capitalize on China’s seemingly bottomless thirst for commodities. Pollution and energy efficiency are also hot topics in China, and small-cap Fuel Tech FTEK provides a nice opportunity to leverage both. Fuel Tech specializes in processes and products that improve the efficiency of coal-fired power plants and reduce pollution. Given the haze that is every Chinese city’s companion, the country could use these processes as soon as possible. Dispatch From: Bargain Hunters Bide Their Time 34 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

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