Morningstar Advisor - Fall 2007 - 37

company’s home base—and, more critically, whether it’s even worth the effort to try. How to Respond Advisors who like to keep clients’ international stake at a certain percentage of assets might view with disdain this new—or more accurately, renewed—adventurousness on the part of portfolio managers and fund companies. How can you keep 15% of a client’s money in foreign stocks when you don’t know how much each fund will be holding in such fare from one quarter to the next? The solution is to become more flexible on those international allocation targets. After all, if you’ve chosen top-notch managers because you admire their investing acumen, it makes sense to allow them the freedom to take full advantage of that talent. So if a U.Sfocused fund’s foreign stake rises simply because the manager has made a carefully considered decision to buy Nokia and Vodafone VOD, or Israeli generic-drug powerhouse Teva Pharmaceutical TEVA, or world-leading Brazilian regional-jet maker Embraer ERJ, then so be it. If a fund’s U.S. stake seems to rise because it finally got around to changing News Corp.’s classification from Australian to American, that’s a technicality, not a source of worry. That’s not to say one should completely ignore a portfolio’s overall geographic leanings. Currency effects alone can have enough of an impact that it pays to know, in rough terms at least, where a portfolio’s exposure lies. Nevertheless, for the reasons described above, it’s worth rethinking whether it’s either as logical or as necessary to hew to a strictly defined international allocation target as it once might have been. Another reason to reconsider: Picking a specific target for international exposure, such as 15% or 30%, fails to take into account what types of stocks those might be. An international stake consisting largely of small, tech-oriented firms from around the world would be an entirely different animal than one made up of huge Western European household names. Therefore, aiming for an international stake in a broad, flexible range, and then paying more attention to the nature of those specific stocks than to their listed domicile, better fits the global state of the world. That response also frees advisors from the worry of having to respond every time allocation levels change through actions they have no control over. It also means that advisors can add an appealing global fund, whose manager and strategy might be unavailable in any other way, even for a client who already owns domestic and foreign funds. A global, flexible approach to investing is no stunning breakthrough and no magic formula. Used judiciously, though, the revival of this broad strategy can prove helpful in attaining the best possible investment results. K Gregg Wolper is a senior mutual fund analyst with Morningstar. Allan C. Nichols, Analyst MOSCOW Russia is eager to be a major player in the global economy and welcomes foreign equity analysts, including ones from Morningstar, with open arms. Just don’t snap a picture of the Kremlin. The room where I met with executives of Sistema, a large holding company that controls Mobile TeleSystems MBT, offered a great view of the Kremlin across the street. I asked my hosts whether I could step out on the balcony to snap a picture. They said I could but that Russian security would be “all over me.” A better idea, they advised, would be to stay inside and shoot my picture through the glass of the balcony door. Despite reminders that Russian society isn’t quite as open as those in the West, Russia has one of the world’s largest populations and fastest-growing economies. And Mobile TeleSystems (also known as MTS) is one of the country’s success stories. It is the largest wireless firm in Russia and provides service in much of the rest of the former Soviet Union, including Ukraine, where it is the No. 2 provider, and Uzbekistan, where it is No. 1. Since 1999, wireless subscribers in Russia have increased from 1.4 million to 152 million. Despite this boom, MTS’ managers told me that they continue to be bullish on the prospects for growth. Subscriber growth is slowing, but average revenue per user is increasing, as more customers than ever are texting and using other data services. None of the Russian telecoms Morningstar covers, including MTS, are cheap, but Telenor TELNY can be had at a more reasonable valuation. Telenor is the incumbent telephone operator in Norway but has extensive fixed-line and wireless telephony holdings in Scandinavia and wireless holdings in many emerging markets. The stable cash flow of Scandinavia provides opportunities for investment in faster-growing, but riskier, markets elsewhere. Telenor owns 56% of Kyvistar, the largest wireless operator in Ukraine; 33% of the equity of VimpelCom VIP, the second-largest wireless operator in Russia (which also has holdings in other countries of the former Soviet Union); and about 18% of Golden Telecom GLDN, an alternative carrier in Russia that is expanding rapidly. Telenor also owns operators in other emerging markets, including Thailand, Pakistan, and Bangladesh. Dispatch From: A Cheap Call on Telecoms MorningstarAdvisor.com 37

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Morningstar Advisor - Fall 2007

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