Morningstar Advisor - Summer 2007 - (Page 55)

process, we think this should pave the way to 30%-plus compound annual growth over the next five years. JP E iShares S&P 500 Growth Index IVW This ETF has a bias toward the biggest stocks in the growth universe, such as top holdings Cisco Systems, IBM IBM, and Microsoft. In fact, mega-cap stocks account for 57% of its portfolio, while its typical large-growth peer dedicates just 40% to market giants. Many of the best bargains in the large-cap universe reside among big blue chips. As a result, this fund has some of the most appealing valuation traits among large-growth ETFs; it dedicates more of its portfolio to stocks rated 4 and 5 stars by Morningstar analysts than most of its ETF rivals. Granted, its bias toward market behemoths has weighed on its performance over the past few years But this ETF stands to benefit when that trend reverses. Finally, while this isn’t the cheapest large-growth ETF out there, it still boasts a very low 0.18% expense ratio. SM SA strategy is best described as contrarian growth. He looks across the market-cap spectrum for firms with strong cash flows and surging returns on invested capital whose shares are struggling. Over the past few years, Decker has found happy hunting among industrials, financials, and energy stocks—traditional deep-value sectors. This compact portfolio now keeps more than 60% of its assets in those three sectors. Strongperforming top holdings include Cemex CX, a global cement producer, Owens-Illinois OI, a glass maker, and Companhia Val Do Rio Doce RIO, a Brazil-based miner. The offering will certainly stumble hard at times, but we are confident that over the long haul Decker’s strong stock-picking will continue to give it an edge. MB has certainly played a part in explaining the disparity. But so too has a weakening dollar, as the euro has appreciated roughly 3% versus the greenback, with the British pound and Australian dollar posting similar advances. While a weak dollar could continue to provide a tailwind, the currency market’s notorious unpredictability makes such gains anything but a sure thing. With that in mind, we’ve pulled together a short list of some of our most-compelling non-U.S. investment ideas, with an emphasis on those that aren’t especially reliant on further dollar weakness. S Thomson ADR TMS International Overview by Jeffrey Ptak Foreign stocks and funds have, on average, handily surpassed the returns of their domestic counterparts in recent years. For example, over the trailing three years ended May 31, 2007, the MSCI EAFE Index of developed foreign markets topped the S&P 500 Index by roughly 7% annually. A robust global economy spurred by low interest rates, muted inflation expectations, brisk demand for natural resources, and resilient consumer spending Janus Opportunistic Alpha Although we’re hesitant to recommend offerings that have been on extended hot streaks, we think this separate account has staying power. The strategy is run by David Decker, who has had long-term success here and at several of Janus’ mutual funds. Decker’s Thomson offers digital media hardware, software, and distribution services to the entertainment and media industries. The firm has become a centralized provider of digital media solutions and content distribution around the globe. As movie studios and networks continue to demand fast replication and secure delivery of content, Thomson has emerged as one of the few firms capable of satisfying their needs. Given the company’s globally integrated processing and distribution capabilities, we think the firm possesses a narrow economic moat. Nevertheless, the market is apparently concerned that digital downloading is going to supplant DVDs, putting a dent in Thomson’s DVD business. Yet, ETFs Highbridge Statistical Mkt Neutral Growth of $10,000 $13K S&P 500 Vanguard Dividend Appreciation Growth of $10,000 $12K 11 S&P 500 iShares S&P 500 Growth Index Growth of $10,000 $12K S&P 500 iShares S&P Global 100 Growth of $10,000 $12K S&P 500 8 11 06 07 00 01 02 03 04 05 06 07 9 05 06 07 01 02 03 04 05 06 0 Alternative pick: A market-neutral fund that actually made money during February and March sell-offs. Managers are hedge-fund veterans. Income pick: More than a dividendindex tracker. Management applies a screen to its index in search of companies that are likely to increase dividends. Growth pick: Likes the mega-caps of the growth universe, which is full of bargains. When these stocks come back in fashion, the fund is poised to benefit. International: Loaded with financially solid industry leaders from across the globe. Fund looks like a bargain as its blue chips are at sizable discounts. MorningstarAdvisor.com 55 http://www.morningstaradvisor.com

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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