Morningstar Advisor - December 2013/January 2014 - (Page 63)

portfolio heavily-laden with one of these families of funds. PIMCO Stock funds are the obvious complement to a PIMCO-laden portfolio, but if most of a client's money is in fixed income, consider some non-PIMCO bond funds, too. Municipal bonds are a small sliver of PIMCO's business, so let's start there. A fund that doesn't make top-down calls but instead focuses on issue selection would make a nice diversifier, so consider a fund like Fidelity Tax-Free Bond FTABX. You can also lower costs with the help of a Vanguard fund such as Vanguard Intermediate-Term Tax-Exempt VWITX. Even taxable bonds might be an area to diversify. On the lower-risk side, consider Dodge & Cox Income DODIX, which also focuses more on issue selection and less on macro bets. Funds for Rounding Out a Family-Centric Portfolio If your client is heavy with funds from... Then diversify that family with... PIMCO Fidelity Tax-Free Bond FTABX Tax-Free Vanguard Intermediate-Term Tax-Exempt VWITX Dodge & Cox Income DODIX American Funds Franklin Federal Intermediate-Term Tax-Free Income FKITX Intermediate-Term Templeton Templeton Global Bond TPINX PIMCO Real Return PRTNX Harbor Real Return HARRX Fidelity Intermediate Municipal Income FLTMX T. T. Rowe Price New Income PRCIX Fidelity FPA FPA Crescent FPACX Tweedy, Tweedy, Browne Global Value TBGVX Longleaf Partners LLPFX Oakmark Select OAKLX FMI Focus FMIOX T. Rowe Price Vanguard Total Stock Market Index VTSAX Vanguard Tax-Managed International VTMGX American Funds Causeway International Value CIVVX Value Although American Funds has fallen in investors' minds, you can still build a pretty good portfolio with its funds. It runs outstanding foreign- and domestic-equity funds that are dependable and cheap. Artisan Global Value ARTGX Value However However, the American Funds multimanager run-a-ton-of-money-in-one-fund model hasn't worked too well for small-cap stocks or bonds. The multimanager system doesn't work well in bonds where one manager's views can undo another one's bets or double them. In addition, they haven't kept pace with the competition when it comes to bond analytics. In fact, we rate seven bond funds from American, and they all earn Morningstar Analyst Ratings of Neutral. For small caps, American has just one very diffuse world-stock fund that doesn't really have that much appeal. On the bond side, there are lots of options to diversify an American Funds portfolio, but here are three worth a look for no-load and load. Dodge & Cox Global Stock DODWX PIMCO All Asset PASDX Vanguard Sequoia SEQUX Akre Focus AKREX PIMCO Investment Grade Corporate Bond PIGIX PIMCO Unconstrained Bond PUBDX On the load side, there's Franklin Federal Intermediate-Term Tax-Free Income FKITX. Franklin is one of the better municipalbond managers on the load side. It has modest costs and robust resources for doing research. On the taxable side, let's stay with the Franklin Templeton family and buy the bold bordercrossing Templeton Global Bond TPINX run by Michael Hasenstab. The strategy is to combine currency and yield plays in order to deliver strong long-term returns. It's got a fair amount of risk, though, so this will work only as a long-term holding. Now, let's dial down the risk by purchasing PIMCO Real Return PRTNX for some well-run TIPS exposure. On the no-load side, we can switch to Harbor Real Return HARRX for the same PIMCO strategy and manager. For munis you can use the same ones I mentioned for PIMCO, but consider Fidelity Intermediate Municipal Income FLTMX if you want a little less interest-rate risk. Finally, we'll round things out with T. Rowe Price New Income PRCIX. This MorningstarAdvisor.com 63 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

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