Morningstar Advisor - Spring 2008 - 18

Investment Briefs Slumping U.K. Market Offering Bargains After running at a brisk pace for several years, the U.K. stock market indicator FTSE 100 Index is in the red so far in 2008, falling more 6 than 11% for the year through March 28. 4 Ease the Pain with Dividends The market, as defined by the S&P 500 Index, has been on quite a roll over the past five years, producing a compound annual total return of about 11% at the end of March. Recessionary fears are filling the minds of many investors so far in 2008, however, and stock prices are in the red. But companies that offer dividends can provide regular income and keep portfolios afloat during tough times like these. (For more on dividends, see page 40.) Investors often overlook dividends as a component of an investment’s total return, but the key to enhancing returns is the reinvestment of income. Returns decline dramatically if dividends are consumed rather than reinvested, as the image below illustrates. The ending wealth value of a $1 investment in the S&P 500 with dividends reinvested would have more than tripled the same investment in which the dividends were consumed instead. since 1992, based on Morningstar’s sector indexes. We also list the sectors with the lowest average income return. Income Returns by Sector: 1992–2007 6 4.87 4 The FTSE 100’s slide reflects, in part, a gloomier 2 outlook for the British economy. The United Kingdom faces some of the same problems as 0 the United States—higher inflation, slower home sales, and exhausted consumers—only to a milder degree thus far, equity analyst Mark Weber says. Investors willing to look past the present economic rough patch can pick up some topnotch companies at low prices, Weber says, including these rated 5 stars. (A price/fair value estimate ratio below 1.0 is undervalued.) High-Quality, Undervalued U.K. Firms Company Moat Price/Fair Value Estimate* 3.01 2.84 2 0.25 Utilities Telecom Energy 0.65 0.80 Media Software Hardware Firms Get More Shareholder-Friendly FPA Capital, DWS, and John Hancock have made major improvements to their stewardship practices. The boards of directors of three FPA funds Utilities Telecom Energy Software Hardware Media elected an independent chairman in December. The boards overseeing FPA Capital FPPTX, FPA Crescent FPACX, and FPA New Income FPNIX are now led by Willard Altman, one of the boards’ independent trustees. This move boosts these funds’ overall Stewardship Grade to A. DWS instituted a new policy that says fund managers are “strongly encouraged to own shares of each fund they manage.” To help determine managers’ compensation, DWS says that it will look at whether managers are invested in their own funds. Manager investment at DWS has been less than stellar. Of the 39 DWS funds that receive a Stewardship Grade from Morningstar, only three management teams invested enough in their own funds to earn full credit for manager ownership. Morningstar recently rewarded 15 John Hancock funds with new Stewardship Grades. The overall grades are rather dim C’s and D’s, AstraZeneca PLC AZN Wide 0.73 Potential blockbuster drugs in late-stage pipeline. Barclays BCS Wide 0.63 60 Entrenched businesses make it a winner long term. 40 BT Group PLC BT Narrow 0.62 High-margin technology-services operations gaining traction. 20 The Power of Reinvesting: 1970–2007 S&P 500 Cap App 60 S&P 500 TR 40 20 Cadbury Schweppes PLC CSG Wide 0.74 0 Separation of confectionery and beverage businesses was a good move. Carnival CUK Narrow 0.64 Aging population will boost cruise business over long term. Diageo DEO Wide 0.73 Growth in emerging markets continues for world’s dominant spirits maker. Lloyds TSB Group LYG Wide 0.74 Has avoided most of the fallout from the credit crisis. Rexam REXMY Narrow 0.62 Packing firm should continue to produce steady cash flows. *Price/fair value estimate ratios calculated using fair value estimates and closing prices as of March 28, 2008. 70 74 78 82 86 90 94 98 02 06 While dividends help ease the pain amid market uncertainty, they are by no means guaranteed. The longer a company has been distributing dividends, however, the more likely it will continue to do so going forward. With investors coming to expect this cash flow, the company runs the risk of upsetting or S&P 500 Cap App even losing its investor base if it decides to S&P 500 TR stop paying dividends. Jan-98 Jan-78 Jan-86 Jan-02 Jan-70 Jan-74 Jan-82 Jan-90 Jan-94 Jan-06 TheApr-72Aug-76Dec-80May-85Jul-89Aug-93Feb-98Apr-02Aug-06 following chart lists theMar-93 Jun-98Nov-02 Dec-07 three sectorsDec-04 that May-94 Dec-99 Apr-94 Jul-94 Dec-94 Dec-96 Feb-70Aug-74Jan-79May-83Oct-87Feb-92Aug-96Feb-01 Feb-06 Mar-70Jun-74Sep-78Feb-83Aug-87Jan-92May-96Oct-00Feb-05 May-70Oct-74Mar-79Jun-83Nov-87Apr-92Jun-96Sep-00Jan-05 Apr-70Sep-74Apr-79Sep-83Feb-88Aug-92Feb-97Jun-01 Mar-06 Aug-70Feb-75Aug-79Feb-84Jun-88Sep-92Jan-97Apr-01 May-06 Jun-70Jul-74Aug-78Jan-83May-87Oct-91Feb-96Aug-00 Apr-06 Sep-70Jan-75Jun-79Nov-83Apr-88Jun-92Sep-96Jan-01 Jun-06 Nov-70Apr-75Sep-79Jan-84May-88Oct-92Mar-97Jul-01 Sep-06 Oct-70Mar-75Oct-79May-84Oct-88Feb-93Jun-97 Feb-02 Oct-06 Jul-70 Dec-74 Jul-79Aug-83Jan-88May-92Oct-96Mar-01 Jul-06 Dec-70Aug-75Feb-80Aug-84Feb-89Jun-93Jul-97 Mar-02Dec-06 Feb-71Jun-75Dec-79Apr-84Sep-88Jan-93May-97 May-02Feb-07 Jan-71May-75Jan-80Jun-84Nov-88Apr-93 Mar-98Jun-02 Jan-07 Mar-71Sep-75Mar-80Sep-84Jan-89May-93 May-98Oct-02Mar-07 May-71Oct-75May-80Oct-84Mar-89Sep-93Apr-98Sep-02May-07 Apr-71Nov-75Apr-80Jul-84Jul-88Nov-92Apr-97 Aug-02Apr-07 Aug-71Feb-76Aug-80Feb-85 Feb-90Aug-94Feb-99Aug-03Jan-08 Jun-71Jul-75 Jun-80Dec-84Apr-89Oct-93 Aug-98Feb-03Aug-07 Sep-71Jan-76 Sep-80Jan-85 May-90Oct-94Jan-99May-03Oct-07 Nov-71Apr-76Nov-80Apr-85 Apr-90Jun-94Sep-98Jan-03Jun-07 Oct-71Mar-76Oct-80Mar-85 Aug-90Feb-95Aug-99Feb-04 Jul-71 Dec-75 Jul-80 Jun-85 Jun-90Sep-94Mar-99Jun-03Sep-07 Dec-71Jun-76 Feb-81 Jul-85 Sep-90Jan-95May-99Oct-03 Feb-72Sep-76Jan-81 Feb-86 Nov-90Apr-95Jun-99Sep-03 Jan-72May-76Mar-81 Mar-86Oct-90Mar-95Sep-99Jan-04 Mar-72Nov-76Apr-81 May-86Jul-90Nov-94Apr-99Nov-03 May-72Oct-76May-81 Apr-86 Dec-90Aug-95Feb-00Aug-04 Aug-72Feb-77Jun-81 Aug-86Feb-91Jun-95Nov-99Apr-04 Jun-72Jul-76 Jul-81 Jun-86 Jan-91May-95Oct-99Mar-04 Sep-72Jan-77 Mar-82Sep-86Mar-91Sep-95Jan-00May-04 Nov-72Apr-77 May-82Oct-86May-91Oct-95Mar-00Jun-04 Oct-72Mar-77 Apr-82Nov-86Apr-91Nov-95Apr-00Sep-04 Jul-72 Dec-76 Aug-82Feb-87Aug-91Jan-96May-00Oct-04 Dec-72Jun-77 Jun-82Jul-86 Jun-91Jul-95Jul-99Jul-03Nov-07 Feb-73 Jul-77 Sep-82Jan-87 Sep-91Mar-96Jun-00Nov-04 Jan-73May-77 Nov-82Apr-87Jul-91 Dec-95 Nov-00 Jul-07 Feb-74Jun-78Oct-82 Jun-87Dec-91Apr-96Jul-00Jul-04 Mar-74Nov-78Apr-83Sep-87Mar-92Nov-96 Jul-02 May-74Oct-78Mar-83Jul-87 Jul-92Jul-96 Dec-00 Apr-74Jul-78Jul-82Dec-86 Dec-92 Nov-98Apr-03 Feb-78 Dec-82 Dec-87 Jul-93 Oct-98Mar-03 Mar-78 Oct-83Mar-88 Feb-94 Jul-98 Dec-02 May-78 Jul-83 Dec-88 Mar-94Dec-98 Dec-03 Apr-78 Dec-83 haveMay-73Sep-77 Mar-84Aug-88 Nov-93 May-01Sep-05 had Dec-77 Dec-85 Dec-93 Sep-01Oct-05 average Sep-97Oct-01Jul-05 return May-89 Jun-89 Sep-89 Nov-89 Oct-89 Dec-89 Nov-97 Oct-97 Dec-97 Nov-01 Dec-01 Mar-05 May-05 Apr-05 Aug-05 Jun-05 Nov-05 Dec-05 Mar-73Nov-77 Nov-84Aug-89 income Aug-01 Nov-06 Apr-73the highestMar-87Nov-91 Aug-97 Aug-73 Dec-78 Aug-85Mar-90 Jun-73Oct-77 Sep-73 Feb-79 Sep-85 Nov-73 May-79 Nov-85 Oct-73 Nov-79 Oct-85 Jul-73Aug-77 Dec-73 Nov-74 Feb-82 Aug-81 Sep-81 Nov-81 Oct-81 Dec-81 18 Morningstar Advisor Spring 2008

Morningstar Advisor - Spring 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Spring 2008

Morningstar Advisor - Spring 2008
Contents
Letter from the Editor
Inbox
Do You Use Annuities with Living Benefit Guarantees?
Managers Who Actively Enrich Shareholders
Staying Out of the Silos
Investment Briefs
Let’s Not All Become Fundamental Indexers Just Yet
Volatility Potential
Adding the Income Dimension
Do’s and Don’ts of RMDs
An Attractive Yield is Only Skin Deep
Mutual Funds Get in the Game
Beyond Target Date
The Last Holdout
A Bird of a Different Feather
First-Class Thinker
Sleep Like a Baby
Is Health Care Immune to a Recession?
Anatomy of a Mutual Fund Disaster
Embrace Your Inner Contrarian
Risks Worth Taking
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar and on MorningstarAdvisor.com
Back to the Garden
Morningstar Advisor - Spring 2008 - Intro
Morningstar Advisor - Spring 2008 - Morningstar Advisor - Spring 2008
Morningstar Advisor - Spring 2008 - Cover2
Morningstar Advisor - Spring 2008 - 1
Morningstar Advisor - Spring 2008 - 2
Morningstar Advisor - Spring 2008 - Contents
Morningstar Advisor - Spring 2008 - 4
Morningstar Advisor - Spring 2008 - 5
Morningstar Advisor - Spring 2008 - 6
Morningstar Advisor - Spring 2008 - Letter from the Editor
Morningstar Advisor - Spring 2008 - 8
Morningstar Advisor - Spring 2008 - Inbox
Morningstar Advisor - Spring 2008 - Do You Use Annuities with Living Benefit Guarantees?
Morningstar Advisor - Spring 2008 - 11
Morningstar Advisor - Spring 2008 - Managers Who Actively Enrich Shareholders
Morningstar Advisor - Spring 2008 - 13
Morningstar Advisor - Spring 2008 - 14
Morningstar Advisor - Spring 2008 - Staying Out of the Silos
Morningstar Advisor - Spring 2008 - 16
Morningstar Advisor - Spring 2008 - 17
Morningstar Advisor - Spring 2008 - Investment Briefs
Morningstar Advisor - Spring 2008 - 19
Morningstar Advisor - Spring 2008 - 20
Morningstar Advisor - Spring 2008 - 21
Morningstar Advisor - Spring 2008 - Let’s Not All Become Fundamental Indexers Just Yet
Morningstar Advisor - Spring 2008 - 23
Morningstar Advisor - Spring 2008 - 24
Morningstar Advisor - Spring 2008 - 25
Morningstar Advisor - Spring 2008 - Volatility Potential
Morningstar Advisor - Spring 2008 - 27
Morningstar Advisor - Spring 2008 - 28
Morningstar Advisor - Spring 2008 - 29
Morningstar Advisor - Spring 2008 - 30
Morningstar Advisor - Spring 2008 - 31
Morningstar Advisor - Spring 2008 - Adding the Income Dimension
Morningstar Advisor - Spring 2008 - 33
Morningstar Advisor - Spring 2008 - 34
Morningstar Advisor - Spring 2008 - 35
Morningstar Advisor - Spring 2008 - Do’s and Don’ts of RMDs
Morningstar Advisor - Spring 2008 - 37
Morningstar Advisor - Spring 2008 - 38
Morningstar Advisor - Spring 2008 - 39
Morningstar Advisor - Spring 2008 - An Attractive Yield is Only Skin Deep
Morningstar Advisor - Spring 2008 - 41
Morningstar Advisor - Spring 2008 - Mutual Funds Get in the Game
Morningstar Advisor - Spring 2008 - 43
Morningstar Advisor - Spring 2008 - 44
Morningstar Advisor - Spring 2008 - 45
Morningstar Advisor - Spring 2008 - 46
Morningstar Advisor - Spring 2008 - Beyond Target Date
Morningstar Advisor - Spring 2008 - 48
Morningstar Advisor - Spring 2008 - 49
Morningstar Advisor - Spring 2008 - 50
Morningstar Advisor - Spring 2008 - 51
Morningstar Advisor - Spring 2008 - 52
Morningstar Advisor - Spring 2008 - The Last Holdout
Morningstar Advisor - Spring 2008 - 54
Morningstar Advisor - Spring 2008 - 55
Morningstar Advisor - Spring 2008 - 56
Morningstar Advisor - Spring 2008 - 57
Morningstar Advisor - Spring 2008 - 58
Morningstar Advisor - Spring 2008 - 59
Morningstar Advisor - Spring 2008 - A Bird of a Different Feather
Morningstar Advisor - Spring 2008 - 61
Morningstar Advisor - Spring 2008 - 62
Morningstar Advisor - Spring 2008 - 63
Morningstar Advisor - Spring 2008 - First-Class Thinker
Morningstar Advisor - Spring 2008 - 65
Morningstar Advisor - Spring 2008 - 66
Morningstar Advisor - Spring 2008 - 67
Morningstar Advisor - Spring 2008 - Sleep Like a Baby
Morningstar Advisor - Spring 2008 - 69
Morningstar Advisor - Spring 2008 - 70
Morningstar Advisor - Spring 2008 - 71
Morningstar Advisor - Spring 2008 - 72
Morningstar Advisor - Spring 2008 - 73
Morningstar Advisor - Spring 2008 - Is Health Care Immune to a Recession?
Morningstar Advisor - Spring 2008 - 75
Morningstar Advisor - Spring 2008 - Anatomy of a Mutual Fund Disaster
Morningstar Advisor - Spring 2008 - 77
Morningstar Advisor - Spring 2008 - Embrace Your Inner Contrarian
Morningstar Advisor - Spring 2008 - 79
Morningstar Advisor - Spring 2008 - Risks Worth Taking
Morningstar Advisor - Spring 2008 - 81
Morningstar Advisor - Spring 2008 - 82
Morningstar Advisor - Spring 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Spring 2008 - 84
Morningstar Advisor - Spring 2008 - 85
Morningstar Advisor - Spring 2008 - 86
Morningstar Advisor - Spring 2008 - 87
Morningstar Advisor - Spring 2008 - 88
Morningstar Advisor - Spring 2008 - Undervalued Stocks
Morningstar Advisor - Spring 2008 - 90
Morningstar Advisor - Spring 2008 - 91
Morningstar Advisor - Spring 2008 - Most Popular Variable Annuities
Morningstar Advisor - Spring 2008 - 93
Morningstar Advisor - Spring 2008 - 94
Morningstar Advisor - Spring 2008 - New at Morningstar and on MorningstarAdvisor.com
Morningstar Advisor - Spring 2008 - Back to the Garden
Morningstar Advisor - Spring 2008 - Cover3
Morningstar Advisor - Spring 2008 - Cover4
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