Morningstar Advisor - April/May 2009 - (Page 27) illustrate the marked preference investors had for companies with more-defendable market positions. The 28.2% loss for wide-moat stocks was a far better fate than the 40.6% loss for narrow-moat stocks and the 49.4% loss for no-moat companies. Indeed, as a result of last year’s dramatic flight to quality, the wide-moat stocks outperformed more than 90% of domestic-stock funds in 2008. Wide-moat businesses don’t win in all markets, however. In the days of easy credit leading up to the financial crisis, no-moat companies flew higher than their higher-quality competitors. In fact, lower-moat businesses enjoyed better returns for most of the decade. Only when the credit crisis hit did investors head for higher ground and wider moats. . 2004 +5.6 +16.4 +19.4 2005 +0.3 +9.9 +15.6 The Beauty of Indexes 2006 +13.9 +17.4 +14.0 2007 +2.7 +8.3 +10.1 Advisors must be able to identify the market’s head- and tailwinds and how their clients’ investments are positioned. But viewing only individual stock returns or a broad market average won’t bring these essential trends into focus. To do the job, advisors need a robust set of indexes. Taken together, Morningstar’s index family and associated tools give advisors powerful lenses through which to view the market from multiple angles. Only with these views can advisors properly diversify portfolios and counsel investors. K Don Phillips is Morningstar’s managing director, corporate strategy, research, and communications. MorningstarAdvisor.com 27 http://www.cffpinfo.com http://www.cffpinfo.com http://www.MorningstarAdvisor.com
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