Morningstar Advisor - February/March 2009 - (Page 58) Investments á la Carte Four Picks for the Present Editor’s Note: As Morningstar Advisor moves to a new bimonthly schedule, we’ve revised Investments á la Carte to give our analysts a chance to pick what they see are the best current opportunities. Exchange-Traded Fund ELEMENTS S&P CTI ETN LSC $12K 11 10 9 S&P CTI ETN 000 1000 10000 000 8000 it still can face liquidity problems because it is so new. We advise investors to check the net asset value and use limit orders to ensure they buy their shares at fair value. Paul Justice Stock Compass Minerals CMP $68K 53 Separate Account UMB Asset Management International Equity Oct 08 Nov 08 Dec 08 $30K 25 20 15 03 04 05 06 07 08 MSCI EAFE TR 30000 25000 Jul 08 Aug 08 Sept 08 This new ETN provides commodity exposure 20000 38 with brains: Its long-short strategy allows this 15000 fund to capture roll yields and provide 23 S&P 500 TR positive returns in a number of economic 10000 04 05 06 07 08 environments. Each month, the index underlying this ETN takes long or short positions in each We love this mid-cap stock. It has strong of six commodity sectors (energy, precious competitive advantages as a result of metals, industrial metals, grains, livestock, and its world-class rock salt and sulfate of potash more-exotic agricultural goods) based on resources. Compass’ major offering is whether the sector index’s current price highway de-icing salt, so profitability is isJul-08 Aug-08 Sep-08 Oct-08 Nov-08ofDec-08 above or below a weighted average the determined by snowy, icy winter weather. The previous seven months’ prices. We think that firm also produces salt for consumer and this strategy has a solid theoretical base industrial uses, such as water conditioning, because the macroeconomic and supply trends livestock feed, food processing, and table salt. that drive commodity prices tend to persist Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Compass also produces SOP, a fertilizer over multimonth periods. Even if commodity thatSep-04May-05 yieldSep-06May-07of high-Oct-08 improvesSep-05May-06 Apr-07 Apr-08 the Feb-04Oct-04 Jun-05Feb-06and Mar-07Nov-07 Jul-08 Mar-04Nov-04 Jul-05 Mar-06Nov-06 Jul-07 Mar-08Nov-08 Apr-04 Feb-05Oct-05 Jun-06Feb-07Oct-07 Jun-08 May-04 Mar-05Nov-05 Jul-06 quality Feb-08 Dec-08 prices remain stable, this fund can benefit from Jun-04 Apr-05 Jul-04 Aug-04 Aug-05Apr-06 Aug-06 Jun-07 May-08 Oct-06 Aug-07 Aug-08 Sep-07 Sep-08 value Dec-04Compass is expandingDec-07 crops. Dec-05 Dec-06 its highway changes in the futures price over time even for de-icing salt and SOP production capacity, the few expensive-to-store commodities which should result in profitable sales growth. that provide negative roll yields. Years of data In addition, SOP prices are increasing on this strategy suggest that it will provide the dramatically, thanks to strong global demand same diversification benefits as a traditional for fertilizers and tight supply. As the world’s long-only commodities stake, but with population grows, the amount of arable higher long-term returns potential. As an ETN, land per person decreases. Further, increasing this fund is backed by the debt of HSBC Bank personal income in developing countries is instead of a portfolio of cash and futures. driving people to change their diets. Finally, This eliminates tracking error against the index high crude oil prices and political considerbut also subjects investors to the bank’s credit ations have motivated countries to encourage risk. Fortunately, HSBC has weathered the biofuel production. All of these factors credit storm and currently has the highest contribute to growing demand for fertilizers. market capitalization of any bank in the world. Haywood Kelly Trading volumes have improved in this fund, but UMB Asset Management International Equity is down but far from out. This proven winner is run by James Moffett, who has a stellar long-term record here and at mutual fund UMB Scout International UMBWX. Like all international offerings, this one hasn’t been immune to the global downturn that has crushed stocks in all markets. This separate account was deep in the red in 2008 but lost less than the MSCI EAFE Index and the bulk of international-equity strategies. That will be of little consolation to those who bought in recently, but long-term holders are still in great Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 shape and new prospects will be well Feb-03 Feb-04 theyJun-05theJul-06 Apr-07 Feb-08 Mar-03 Mar-04 Feb-05 Feb-06 Feb-07 Mar-08 Apr-03 Apr-04 Mar-05 Mar-06 Mar-07 Apr-08 May-03 May-04 Apr-05 Apr-06 May-07 May-08 Jun-03 Jun-04 May-05 Jun-06 Jul-07 Jul-08 Jul-03 Jul-04 Jul-05 Aug-06 Aug-07 Aug-08 Aug-03 Sep-04 Aug-05 plunge. Moffett has Sep-03 if Oct-03 Oct-04 Sep-05 Sep-06 Sep-07 Sep-08 Nov-04 Oct-05 Oct-06 Oct-07 Oct-08 Nov-05 Nov-06 positionedAug-04 take May-06 Jun-07 Jun-08 Nov-03 Dec-04 Dec-05 Dec-06 Nov-07 Dec-03 Dec-07 long had success using a combination of macroeconomic forecasting and pure bottom-up stock-picking. In nutshell, he looks for countries and sectors with the strongest economic trends and then buys financially sound firms with stable businesses within those areas. He has executed this process with aplomb over time, and we expect the same going forward. We remain fully confident in Moffett and this strategy. Michael Breen 58 Morningstar Advisor February/March 2009
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