Morningstar Advisor - December 2013/January 2014 - (Page 10)

On Topic What Concerns You About Emerging Markets? Let us know your thoughts at magazine_editor@morningstar.com My greatest concern about emerging markets equity investments is extreme volatility. My clients are retired, many of them are in their 70s and 80s. Their investment time frame means they can't endure a multiyear decline and recovery just to break even. For example, look at the record for Templeton Developing Markets TEDMX. In 2008, it lost 53.91%. Despite making 73.92% the following year, it still hasn't recouped all the losses from 2008. That's simply unacceptable for an elderly person (and not very attractive at any age). Gregory E. Schultz Asset Allocation Advisors, Inc. Walnut Creek, Calif. My number-one concern is the "hot money." It can come out of the emerging markets as fast as it went in. Thomas E. Hoden LifeStyle Wealth Management Centennial, Colo. We have a sizeable allocation to emerging markets. The long-term growth fundamentals and current valuation appear attractive. However, we have many concerns: 1) Price volatility is heavily impacted by liquidity, 2) the "easy" growth for many emerging-markets countries, particularly the BRICs, is over, 3) the volatility caused by the Chinese economic model transition, and 4) the narrowing differentials of EPS growth of developed country companies versus 10 Morningstar Advisor December/January 2014 those in the emerging markets. Putting those four factors together, the ride might continue to be bumpy-but then again, that's why it's called emerging markets. Sam Sudame, CFA, CFP Singer Xenos Wealth Management Coral Gables, Fla. Quick Poll (Nov. 7, 269 responses) 1 What's the best way to invest in emerging markets, active management or passively? Active 74.7% Passive 25.3% 2 Emerging-markets debt or equities? Am I trying to catch a falling knife. The credit markets and what Debt the Fed's next move seems to have such an incredible effect on emerging markets right now that it just seems better to steer clear, or more precisely, to just keep my allocations low until things settle down. Neither Equities Both When investing in the emerging-markets asset class for a client, it is important to be diversified. It is only part of the asset allocation in the entire portfolio. We use up to 4% exposure as an asset class. We use mutual funds and ETFs with great management and track records. Just like any other asset class, we expect it to go through cycles, and we continue to rebalance on a regular basis. So, I guess the short answer is to remain diversified and choose great management. 1.9% 57.7% 3 What percentage of your clients' assets do you have allocated to emerging markets? 0% Christopher Durr Durr Wealth Planning Chesterfield, Mo. 2.7% 37.7% 3.3% 1%-5% 34.7% 6%-10% 37.5% >10% 24.5% 4 Have you increased, decreased, or kept the same your clients' exposure to emergingmarkets equities over the past year? Increased 37.3% Decreased 16.6% Same 46.1% 5 Where will the next big emerging-markets growth story happen? Asia 27.6% 14.3% Latin America 27.6% Africa A. Elizabeth Lane, CFP Lane & Associates Financial Services Parrish, Fla. Eastern Europe 30.5%

Table of Contents for the Digital Edition of Morningstar Advisor - December 2013/January 2014

Morningstar Advisor - December 2013/January 2014
Contents
Contributors
Letter From the Editor
What’s Your Purpose?
Working for Gen Y
How to Allocate College Savings
Mobius Looks to a New Frontier
Investments á la Carte
Investment Briefs
How to Manage Bonds for Today and Tomorrow
Cloud Is the New Engine of Growth
Knowing Where to Look
Economic Vulnerability Varies by Country
Factor Investing in Emerging Markets
Following the Rules
Exploring Indexing’s Next Frontiers
Frequent Fliers
Family Blind Spots
Optimal Portfolios for the Long Run
Finding Value in a Pricey Sector
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Emerging-Markets Roller Coaster

Morningstar Advisor - December 2013/January 2014