Morningstar Advisor - April/May 2009 - 58

Investments á la Carte Four Picks for the Present Mutual Fund Longleaf Partners LLPFX 21000 $15K 13 11 S&P 500 TR Exchange-Traded Fund BLDRS Developed Markets 100 ADR Index ADRD $21K MSCI EAFE TR desirable sector allocation, the ETF trades at an attractive discount to our estimated fair value of the underlying holdings. Equity investors who want to get paid while they wait for price appreciation should give this ETF a long look. Bradley Kay 14000 9 14 7000 04 05 06 07 08 09 04 05 15000 06 07 08 09 Stock 3M MMM $15K 13 11 9 S&P 500 TR 04 05 06 07 08 09 This ETF tracks the Bank of New York Mellon Developed Markets 100 ADR Index, a The bear market has left many great companies market-cap-weighted index tracking 100 of trading at multiyear lows, and this wide-moat the largest international companies that have firm is one of them. We expect near-term head shares listed on U.S. exchanges. This keeps Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 winds to continue, with further drops in The fund has always taken big stakes in firms the quality of the index holdings high, while facing plenty of issues, but it has been right keepingMar-05 Dec-05ofNov-06Jul-07Mar-08 Feb-09 revenue and earnings through 2009, but we theJul-05 Apr-06diversificationJun-08 Mar-09 benefitsJul-06 Apr-07Dec-07 Sep-08 across Feb-04Oct-04Jun-05 May-06 Feb-07Oct-07 Jul-08 Mar-04 Feb-05 Apr-04 Apr-05 May-04 May-05 Jun-04 Jul-04 Aug-04 Aug-05 Jun-06 May-07 Feb-08Oct-08 Sep-04 Sep-05 Aug-06 Jun-07 Apr-08 Nov-04 Sep-06 Aug-07May-08 Oct-06 Sep-07 Aug-08 Nov-07 Dec-04 Oct-05 sectors. We Nov-05 Mar-06 Mar-07 Dec-08 believe our long-term assumptions continue to much more often than not over time. We recall both companies Feb-06 Dec-06 like the Nov-08 and low Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 hold. The shares appear dirt cheap to us. the late 1990s when the fund started building expense ratio of 0.30% and the relatively whatNov-04Jul-05Mar-06 Dec-06struggling Feb-04Oct-04Jun-0516%Jul-06Mar-07 Feb-08Waste Mar-04 Dec-04 Sep-05 Jun-06Feb-07Oct-07Jun-08 Mar-09 high dividend yield on this ETF’s underlying Apr-04became Nov-05Aug-06May-07 Mar-08 May-04 Feb-05Oct-05 stake Apr-07 Apr-08 Jun-04 Mar-05a Feb-06Oct-06Jun-07 May-08 Jul-04 May-05 Apr-06 Aug-04 Aug-05May-06 in Jul-07 Sep-04 Sep-06 Aug-07 Jul-08 Nov-06 Sep-07 Nov-07 Apr-05 Dec-05 Dec-07 Sep-08 Aug-08 Oct-08 Dec-08 Feb-09 for Management’s expectation that 2009 earnings Management WMI. The stock languishedNov-08 securities. We also slightly prefer the sector Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 years, raising concerns about the judgment of per share will fall 10% to 15% is in line with allocation of this ETF to rivals based upon comanagers Mason Hawkins and Staley Cates. ourSep-04 Jul-05 May-06 Apr-07 Apr-08 projections. the MSCI EAFE index because the fund holds Feb-04Oct-04Jun-05InApr-06 Feb-07Oct-07Jun-08Feb-09 Mar-04 Dec-04 Sep-05addition,May-07 Feb-08 firm’s Apr-04 Feb-05Oct-05Jun-06 Mar-07 Mar-08 Mar-09 May-04 Mar-05 Dec-05 Sep-06 we thinkMay-08 Jun-04 Apr-05 Feb-06Oct-06Jun-07 the Jul-04 May-05 Aug-04 Aug-05 Jul-06 Nov-04 Nov-05Aug-06 Jul-07 Aug-07 Jul-08 Sep-07 Aug-08 Nov-07 Sep-08 Mar-06 Dec-06 Dec-07 Oct-08 Nov-08 Dec-08 But Waste Management eventually more than strategic decisions willNov-06 the firm over benefit smaller stakes in the vulnerable financials doubled, and the fund cleaned up. We don’t the long run. 3M plans to cut capital expendiand industrials sectors while boasting larger think Hawkins and Cates, who were Morningtures by 30% next year and save $200 million investments in health care and the beatenstar’s 2006 Domestic-Stock Managers of the through bonus and vacation adjustments. down energy sector. The fund’s 20% stake in Year, have lost their touch. They say that the Furthermore, the firm’s health-care segment financials may still seem hefty, but by this point, portfolio is trading at less than half their will likely remain resilient through trying times, it has very little exposure to the vulnerable estimate of fair value—its lowest level ever. offsetting continued weakness in electronics British or Irish banks whose troubles made and other consumer-driven businesses. headlines in January. This bold fund will make mistakes. But we think every miss, such as General Motors GM, We think 3M’s pristine balance sheet and As for the rest of the international markets, will be more than offset by several winners. prudent cost control will preserve the every stock suffered in the sell-off of 2008, the The fund also carries a big, negative potential company’s wide moat. Based on our assessfrogs and princes alike. This has generated capital gains exposure, which should give it ment of future free cash flows, we think the some major bargains among the blue-chip flexibility in dodging the taxman when it does shares are worth $85 per share—well companies held by the fund. Between the high rebound. Michael Breen above the current share price. The stock not quality of its constituent companies and This fund got hammered in 2008. It lost 50.6% as big positions in several stocks—including Dell DELL, Liberty Interactive LINTA, and CEMEX—cratered. Even so, the fund’s long-term record is impeccable. It has returned an average of 9.3% annually since its 1987 inception, and we think that is a truer indication of management’s ability than last year’s debacle. 13000 Low cost, big dividend yields, and high-quality 11000 holdings make this ETF a promising way 9000 to invest in the safest international equities. 7000 5000 58 Morningstar Advisor April/May 2009

Morningstar Advisor - April/May 2009

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