Morningstar Advisor - August/September 2011 - (Page 13)

Jim Dowd, president and chief investment officer, North Capital equities model, Dowd uses Guggenheim China Small Cap ETF HAO and Guggenheim China All Cap ETF YAO. There’s emergingmarkets exposure in the fixed-income model through WisdomTree Emerging Markets Local Debt ELD. Fixed income also includes iShares Barclays MBS Bond MBB, which focuses on U.S. mortgage-backed securities. ETFs play a bigger role in the diversifying strategies portfolio, where there are few open-end options that meet client needs. Here, Dowd turns to the WisdomTree Managed Futures Strategy WDTI, which invests in various instruments including currency, Treasury, and commodity futures. He also uses JP Morgan Alerian MLP ETN AMJ, which invests in energy-sector master limited partnerships. How he caught our eye: Emphasizes the institutional qualities of low-cost investing and diversification. Career path: Founded North Capital in 2008 after working at Bear Stearns as a senior managing director and head of the hedge fund investment team from 2003 to 2008. From 1996 to 2003, he was the founder and managing partner of North Capital, LLC, where he managed Japan-focused arbitrage investment strategies. From 1987 to 1996, he worked as a derivatives expert at Bankers Trust Co. He graduated magna cum laude in 1985 from the Georgetown University School of Foreign Service, majoring in international economics. He is a CFA charterholder. Personal: Married with six children. Favorite funds: DFA U.S. Core Equity 2 DFQTX, Natixis ASG Global Alternatives GAFAX, Vanguard Emerging Markets Stock Index VEIEX. A Postcrash Advisor In addition to his institutional perspective, Dowd also has the unique viewpoint of someone who went into business after the 2008 crash. What he saw at Bear Stearns, combined with the experience of opening his own firm amid a financial meltdown, “underscored the fact that markets are driven by sentiment as much as value,” he says. “It highlighted the need for diversification of risk. A number of people have said that 2008 proved diversification did not work, which is nonsense,” he says. “Diversification works, but certain exposure—like the process of taking risk at all—cannot be diversified away. You can’t have return without risk. The most important factor in generating returns is maintaining exposure to the market.” Dowd is confident that his career change was the right move. He enjoys helping families, retirees, and small-business owners and making a difference in their lives. “It’s the most gratifying work I’ve ever done,” he says. K Kate Stalter is a columnist for RealMoney at TheStreet.com. of investor, but the weightings within the portfolios differ. When choosing the underlying investments of each model portfolio, Dowd’s objective is to help clients save money, achieve tax efficiency, and be diversified. Dowd says that his first preference is to use open-end passive mutual funds to keep transaction costs down. He frequently turns to funds from Vanguard (such as Vanguard Emerging Markets Stock Index VEIEX) and Dimensional Funds Advisors (such as DFA U.S. Core Equity 2 DFQTX). He says that he appreciates that Dimensional and Vanguard let investors diversify across various styles and geographic regions. Another favorite is quantitative investment management firm AlphaSimplex, headed by MIT professor Andrew Lo and longtime asset manager Jerry Chafkin. (He often uses the firm’s Natixis ASG Global Alternatives GAFAX.) Dowd likes that the firm is able to achieve alternative beta while maintaining liquidity and transparency. Turn to ETFs When he can’t gain exposure to a particular market segment or wants to lower expenses, Dowd looks for exchange-traded funds. For example, in the liquidity model portfolio, where bond funds play a big role, Dowd uses PIMCO 1–3 Year U.S. Treasury Index TUZ, iShares Barclays Short Treasury Bond SHV, and iShares Barclays 1–3 Year Treasury Bond SHY. To give clients exposure to China in the global MorningstarAdvisor.com 13 http://www.TheStreet.com http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Contents
Contributors
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011