Morningstar Advisor - Summer 2007 - (Page 52)

Investments à la Carte A Menu of Ideas to Fill Five Market Baskets Morningstar analysts cook up 14 investment picks for income, growth, value, international, and alternative. Use these selections to round out a portion of a portfolio or as the building blocks of a new one. Income Overview by Sonya Morris As baby boomers move closer to their retirement years, their portfolios will need to generate more income, and investment firms have rushed to tap into that demand by rolling out more income-oriented vehicles. But high-yielding investments have a lot more going for them than a steady income stream. For example, bond funds can serve as ballast to a portfolio, helping to mitigate volatility and improve risk-adjusted returns. Dividend-paying stocks can also help goose a portfolio’s yield, and they also look appealing from a valuation perspective right now. Big dividend-paying blue chips have looked sluggish next to their small-cap brethren over the past few years, yet during that time, many of these market leaders have steadily grown and improved profitability. Consequently, many large-cap dividend payers are trading at below-market multiples. Here are a few ideas that may appeal to yield-hungry sorts. S Mutual Fund Separate Account SA Stock MF E ETF Jeffrey Ptak, CPA, CFA, Stocks Michael Breen, Separate Accounts Value Alternative MF MF Washington Mutual WM S Analysts Karen Dolan, CFA, Mutual Funds Sonya Morris, CPA, ETFs Income S MF E Washington Mutual Vanguard Windsor II Vanguard Dividend Appreciation S MF SA Motorola Oak Value Thornburg Domestic Equity Composite UBS Equity Alpha Highbridge Statistical Market Neutral Growth S E SA International S MF E Fuel Tech iShares S&P 500 Growth Index Janus Opportunistic Alpha Thomson ADR Longleaf Partners International iShares S&P Global 100 At first blush, Washington Mutual looks like just another casualty of the housing slump. The stock has badly lagged the broader U.S. market in recent months amid investor fears that a slowdown in the mortgage business will dent the firm’s business. Yes, Washington Mutual has been a major player in the mortgage industry and stands to lose its fair share. However, management has taken steps to fortify the firm’s balance sheet. For examle, it pared nearly all of its subprime loan originations in 2006, and we expect it to further restructure the mortgage portfolio. We also think that investors are overlooking the crown jewel of WaMu’s business: the retail banking franchise, where its innovative, hassle-free approach continues to spur impressive growth. With the acquisition of credit-card issuer Providian, WaMu also should succeed in further diversifying its revenue stream. And for the income-hungry, the stock looks positively delectable, as it was recently yielding more than 4.8%. JP 52 Morningstar Advisor Summer 2007

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

Morningstar Advisor - Summer 2007 Contents Letter from the Publisher Get to Know the Bond “All-Stars” Research Briefs Our Stewardship Test Gets Tougher Save It for Later Too Many Oranges Best of Both Worlds No Two Clients Are Alike When It Comes to VAs, It’s Seller Beware Hands On: Finding the Suitable Fund Share Class for Your Client Fund Style Can Drift Off Course Sticking to Their Style, Through Thick and Thin Marathon Man Growth, With a Chaser A Menu of Ideas to Fill Five Market Baskets Funds: Finding Funds with Conviction Stocks: So You Say You Want Income? All Eyes on China Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities What’s New at Morningstar and on the Web The Advisor’s Economic Moat

Morningstar Advisor - Summer 2007

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