Morningstar Advisor - December 2013/January 2014 - (Page 61)

mobile devices. Strabo likes the firm because it has a strong presence in both developed and emerging markets and continues to develop new client relationships. The stock is up almost 40% for the year through Oct. 31. Pigeon, a South Korean maker of household products, is up 147% this year. Another top performer was KakaKu.com, a Japanese price comparison website for shoppers. Strabo has also been dipping into frontier markets, too. A recent purchase was Kolao Holdings, a conglomerate that gives the fund exposure to fast-growing Laos. (The Asian Development Bank estimates the country's economy will grow 7.7% in 2014.) "We want to invest in companies that are good at what they do," he says. "They have dominant market positions and good products and services. Yet they are small enough to see a clear path to wealth creation." Strabo is supported by two experienced analysts. But he can also tap the research conducted by Rainier's eight-person domestic team and a small two-person fixed-income team. In total, the firm runs almost $11 billion. Seafarer Overseas Growth & Income: Starting From Scratch Foster knows what it's like to have a plenty of resources at his disposal. As a portfolio manager at Matthews Asia funds in the 2000s, he could lean on about a dozen portfolio managers and analysts. Now, though, he has just two associate portfolio managers to split the research duties with. And that's the way he likes it. To Foster, having an army of analysts on the ground in local markets is overrated. "Boots on the ground sounds wonderful," he says. "But if you are in the local market every day you can fool yourself into thinking you know more than you actually do." Foster's goal is to use a combination of stocks, preferreds, and convertible bonds in order to build a portfolio that can generate capital appreciation and current income. He largely avoids making top-down decisions based on macroeconomic trends. Instead, he favors picking emerging-markets stocks with attractive valuations and consistent cash flows that can be used to pay dividends. He keeps the fund diversified across sectors and regions. But holding just 43 positions, the fund is a bit concentrated. Indeed, 35% of assets are 12000 in its top 10 holdings. 40 Lately, Foster has been focusing some of his 10000 research efforts on the traditional BRIC countries-Brazil, Russia, India, and China- 20 but especially Brazil. These countries 8000 were under-represented when Foster launched the fund because he had valuation and currency concerns. Now, slowing growth in China have spilled over into Brazil, a chief trading partner. Foster says the dips in the BRICs have presented an opening. He is leaning more toward service-oriented firms. He recently initiated a position in Valid, a Brazilian company that manufactures credit cards and cellular phone cards and prints driver's licenses and corporate photo IDs. Another holding is Odontoprev, which specializes in dental benefits. "The hot market is actually going to be the market within the hot market," he says. "The real frontier is the services sectors in these countries. It's reminiscent of the U.S. in the 1940s. And those domestic sectors are undervalued in a lot of countries." There is ample reason to buy into what Foster is saying. As a key manager on the teams running Matthews Asia Dividend MAPIX, Matthews Asian Growth & Income MACSX and Matthews India MINDX, he helped post performance throughout the 2000s that easily outpaced the MSCI EAFE Index. In the early going at Seafarer, Foster has been able to add value compared with peers in most sectors. NTT DoCoMo and Malaysia glovemaker Hartalega are two of the fund's top performers the last year. Gains from those Andrew Foster Seafarer Overseas Growth & Income SFGIX $12K 10 MSCI EM NR USD 03/ 12 01/ 13 10/ 13 Category Diversified Emerging Markets Expense Ratio (%) 1.49 Morningstar Rating - 1-Yr Annl Total Rtn (%) 11.36 Minimum Investment $2,500 1-Yr Total Rtn % Rank Cat 19 Data as of Oct. 31, 2013 stocks, though, have been somewhat washed out by Latin America holdings such as Chile-based SQM, which produces specialty chemicals. Its shares have fallen on weak exports. That stock is no longer in the portfolio. Foster, though, has largely been sticking by his positions, as evidence by the fund's 39% turnover (versus 72% for the category average). And he thinks the consumer-oriented names in the portfolio will pan out over the long haul. He adds a word of caution for emergingmarkets investors: "You have to analyze the control party," he says. "In most cases, the company has a person or entity behind the scenes that sets the agenda. It is essential to know their intentions." K Rob Wherry is the associate editor of Morningstar Advisor magazine. MorningstarAdvisor.com 61 http://www.KakaKu.com http://www.MorningstarAdvisor.com

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