Morningstar Advisor - Summer 2008 - 55

historical lows. There’s potential in media, too, but traditional media has some structural issues. In financials, we’ve gone very slow, but I’m convinced there’s opportunity in banks in Europe and America; we’re just not quite there yet with the valuations. KK: To what degree do you look at currencies? RG: We do not hedge currencies at the currency level. All currency is done at the stock level; it’s incorporated in our view of a company. For example, the Japanese yen was at 122 to the dollar, it got to 98, and it’s now at 104. My view is that it went too far and it’s going to back up a little bit, maybe back to 108 or 110. Maybe I’m right, maybe I’m wrong. But the key is how would that affect exporters? Well, the exporters—like a Toyota or Nikon, which we happen to own—would benefit. It has less effect on a domestic company, like a retailer. Not to scare off potential investors, but this is among the hardest times in my entire career; it’s the most confusing time as to what to do. Robert Gensler because inflation’s no longer coming down. It’s stabilized and perhaps going up. Real interest rates won’t be able to come down. The currency has rallied hard. So this beautiful thing we call Brazil is still good, but directionally, not as good. As for China, 6% to 6.5% of the strategy was in China in September. We took it down to 1.5% in October and November. Every sale we made was wrong until February, because that market just kept going up. In hindsight, those sales were fine. We’ve started to rebuild our positions in China. We’re actually back to about 4.5% to 5%. We own China Shenhua, which is a coal company. We own Industrial and Commerce Bank of China. We own GOME, which is a consumer electronics company. All different, stock-specific kinds of things. India’s been a very difficult market recently. We know that the underlying economy’s sound, but the inflation’s picked up and the government’s trying to control it. We own Bharti Airtel and State Bank of India. If you notice, we have about 9% of the strategy in emerging-markets banks. That’s come down a little and could come down more, because with inflation rising and interest rates rising, you want to stay ahead of things within banks. KK: What are you finding in developed markets? RG: The dilemma right now in Europe, America, I don’t think it’s wise in an equity portfolio to do a lot of currency hedging. Take the Turkish lire. We’re quite concerned about it for a lot of reasons right now—the foreign direct investment, the risk premiums, etc. If the lire has a problem and the Turkish Central Bank wants to protect the lire, they’re going to have to raise interest rates, and that macro factor of currency will leak into the micro of the fundamentals of a company. So we analyze all currency at the micro level. KK: How do you define growth investing? RG: I have a growth orientation but a very and Japan is that there are a lot of great companies, but there are a lot of head winds and issues, particularly domestically in Japan, where the demographics are so poor. Where I’m spending time right now, and where I’m convinced there’s great opportunity in Europe and America is in consumer discretionary. We’re being very careful and slow, but so many companies have been beaten up. The retailers are down at, not just at 52-week lows, but broad definition of what growth is. I like an industry structure that’s conducive to profitability and getting better over the next few years. I like companies that are gaining stature and share. I’ll play gross cyclicals. I’ll buy regular growth. It doesn’t matter. KK: I noticed in the portfolios that you had positions in both Sprint Nextel S and AlcatelLucent ALU, which would seem to go against what you just said [laughter]. MorningstarAdvisor.com 55
http://MorningstarAdvisor.com

Morningstar Advisor - Summer 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Summer 2008

Morningstar Advisor - Summer 2008
Contents
Letter from the Editor
Contributors
Inbox
College Planning: Solutions and Concerns
ETFs: The Next Chapter
Engineering Financial Advice
Investment Briefs
Flexible vs. Style-Pure Managers: The Evidence
Forging a New Commodity Index
Work Your Way Through College Planning
Sizing Up the Options
Best and Worst 529 College-Savings Plans
A 529 Travel Guide
10 Tax-Smart Tips for College-Savings Planning
Global Dialogue
How Sequoia Cranks Out Good Returns Year After Year
The Many Layers of David Winters
Living on the Edge
Stocks to Buy Once a Decade
With Munis Feeling the Pain, Some Opportunities Arise
Health Care Provides Shelter from Economic Storm
Help Your Clients Get More Out of Their Bond Portfolios
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
New on MorningstarAdvisor.com
Closer to Fine
Morningstar Advisor - Summer 2008 - Morningstar Advisor - Summer 2008
Morningstar Advisor - Summer 2008 - Cover2
Morningstar Advisor - Summer 2008 - 1
Morningstar Advisor - Summer 2008 - 2
Morningstar Advisor - Summer 2008 - Contents
Morningstar Advisor - Summer 2008 - 4
Morningstar Advisor - Summer 2008 - 5
Morningstar Advisor - Summer 2008 - 6
Morningstar Advisor - Summer 2008 - Letter from the Editor
Morningstar Advisor - Summer 2008 - Contributors
Morningstar Advisor - Summer 2008 - Inbox
Morningstar Advisor - Summer 2008 - College Planning: Solutions and Concerns
Morningstar Advisor - Summer 2008 - 11
Morningstar Advisor - Summer 2008 - ETFs: The Next Chapter
Morningstar Advisor - Summer 2008 - 13
Morningstar Advisor - Summer 2008 - 14
Morningstar Advisor - Summer 2008 - Engineering Financial Advice
Morningstar Advisor - Summer 2008 - 16
Morningstar Advisor - Summer 2008 - 17
Morningstar Advisor - Summer 2008 - Investment Briefs
Morningstar Advisor - Summer 2008 - 19
Morningstar Advisor - Summer 2008 - 20
Morningstar Advisor - Summer 2008 - Flexible vs. Style-Pure Managers: The Evidence
Morningstar Advisor - Summer 2008 - 22
Morningstar Advisor - Summer 2008 - 23
Morningstar Advisor - Summer 2008 - 24
Morningstar Advisor - Summer 2008 - Forging a New Commodity Index
Morningstar Advisor - Summer 2008 - 26
Morningstar Advisor - Summer 2008 - 27
Morningstar Advisor - Summer 2008 - 28
Morningstar Advisor - Summer 2008 - 29
Morningstar Advisor - Summer 2008 - 30
Morningstar Advisor - Summer 2008 - 31
Morningstar Advisor - Summer 2008 - Work Your Way Through College Planning
Morningstar Advisor - Summer 2008 - 33
Morningstar Advisor - Summer 2008 - 34
Morningstar Advisor - Summer 2008 - 35
Morningstar Advisor - Summer 2008 - Sizing Up the Options
Morningstar Advisor - Summer 2008 - 37
Morningstar Advisor - Summer 2008 - Best and Worst 529 College-Savings Plans
Morningstar Advisor - Summer 2008 - 39
Morningstar Advisor - Summer 2008 - 40
Morningstar Advisor - Summer 2008 - 41
Morningstar Advisor - Summer 2008 - A 529 Travel Guide
Morningstar Advisor - Summer 2008 - 43
Morningstar Advisor - Summer 2008 - 44
Morningstar Advisor - Summer 2008 - 10 Tax-Smart Tips for College-Savings Planning
Morningstar Advisor - Summer 2008 - 46
Morningstar Advisor - Summer 2008 - 47
Morningstar Advisor - Summer 2008 - 48
Morningstar Advisor - Summer 2008 - 49
Morningstar Advisor - Summer 2008 - Global Dialogue
Morningstar Advisor - Summer 2008 - 51
Morningstar Advisor - Summer 2008 - 52
Morningstar Advisor - Summer 2008 - 53
Morningstar Advisor - Summer 2008 - 54
Morningstar Advisor - Summer 2008 - 55
Morningstar Advisor - Summer 2008 - 56
Morningstar Advisor - Summer 2008 - 57
Morningstar Advisor - Summer 2008 - How Sequoia Cranks Out Good Returns Year After Year
Morningstar Advisor - Summer 2008 - 59
Morningstar Advisor - Summer 2008 - 60
Morningstar Advisor - Summer 2008 - The Many Layers of David Winters
Morningstar Advisor - Summer 2008 - 62
Morningstar Advisor - Summer 2008 - 63
Morningstar Advisor - Summer 2008 - Living on the Edge
Morningstar Advisor - Summer 2008 - 65
Morningstar Advisor - Summer 2008 - 66
Morningstar Advisor - Summer 2008 - 67
Morningstar Advisor - Summer 2008 - 68
Morningstar Advisor - Summer 2008 - 69
Morningstar Advisor - Summer 2008 - Stocks to Buy Once a Decade
Morningstar Advisor - Summer 2008 - 71
Morningstar Advisor - Summer 2008 - With Munis Feeling the Pain, Some Opportunities Arise
Morningstar Advisor - Summer 2008 - 73
Morningstar Advisor - Summer 2008 - 74
Morningstar Advisor - Summer 2008 - 75
Morningstar Advisor - Summer 2008 - Health Care Provides Shelter from Economic Storm
Morningstar Advisor - Summer 2008 - 77
Morningstar Advisor - Summer 2008 - Help Your Clients Get More Out of Their Bond Portfolios
Morningstar Advisor - Summer 2008 - 79
Morningstar Advisor - Summer 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Summer 2008 - 81
Morningstar Advisor - Summer 2008 - 82
Morningstar Advisor - Summer 2008 - 83
Morningstar Advisor - Summer 2008 - 50 Most Popular Equity ETFs
Morningstar Advisor - Summer 2008 - 85
Morningstar Advisor - Summer 2008 - Undervalued Stocks
Morningstar Advisor - Summer 2008 - 87
Morningstar Advisor - Summer 2008 - 88
Morningstar Advisor - Summer 2008 - 89
Morningstar Advisor - Summer 2008 - Most Popular Variable Annuities
Morningstar Advisor - Summer 2008 - 91
Morningstar Advisor - Summer 2008 - 92
Morningstar Advisor - Summer 2008 - New at Morningstar
Morningstar Advisor - Summer 2008 - 94
Morningstar Advisor - Summer 2008 - New on MorningstarAdvisor.com
Morningstar Advisor - Summer 2008 - Closer to Fine
Morningstar Advisor - Summer 2008 - Cover3
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