Morningstar Advisor - Spring 2008 - 62

Undiscovered Managers Western culture is all about action, right? But often the best course of action is doing nothing. Ralph Shive information-gathering process. “You pan piles of rock and stuff to look for a few nuggets that you want to take action on.” All that reading occasionally adds up to a flash of insight that prompts Shive to make big changes to the portfolio, such as the shift out of financials. Although Shive trades infrequently—turnover has averaged roughly 25% for most of the fund’s life—he says his trading tends to come in fits and starts. Shive also periodically keeps cash on hand, so he can protect capital during rocky markets and pounce on opportunities as they arise. Cash ranged into the double digits in 2001 and 2002, for example, and the fund had a 14% cash stake as of its most recently available portfolio. “With questions about whether we’re heading into recession, and problems with housing and the consumer, I want to have some dry powder,” he says. “I think that I’ll be able to buy some stocks cheaper.” Not Like the Others But the fund does share at least a few things in common with other bank-run offerings— notably, a fairly lean staff. Shinnick, who has amassed a solid track record at 1st Source Monogram Long/Short Fund FMLSX, works closely with Shive, and the pair employ two equity analysts. Shive and Shinnick also rely on outside research firms—including William O’Neil, Leuthold, and Ned Davis— to supplement their own work. Shive argues that employing more people would push him to trade more than he cares to. “If you have a stable of analysts, they’re chomping on the bit, ‘I want my idea in the portfolio. I’ve got to do something.’ Western culture is all about action, right? But often the best course of action is doing nothing.” If Shive is concerned about anything these days, it’s how the portfolio’s heavy weighting in the industrials sector might be affected by an economic downturn. He mentions it several times in the course of our day together. Holdings such as Raytheon RTN and Alcoa AA have enjoyed a big runup over the past several years, and Shive is concerned about overstaying his welcome. Another consideration for investors looking at the fund right now is how it would fare if mid-caps and smaller large caps, which figure prominently in the portfolio, ceded market favor to mega-caps for an extended period of time. Shive has gradually shifted more and more of the portfolio into blue chips as he has seen values emerge, but the fund has spent much of its life in Morningstar’s mid-cap value category and retains its share of off-the-beaten-path names. The fund’s market cap is notably smaller than the typical large-value fund’s. “I am worried about my style,” he admits, “And I’m trying to ameliorate the risk there. I’m thankful I’m at a firm where I’m allowed to float around a little bit.” That candor is refreshing, as is Shive’s disdain for complacency and conventional wisdom. The fund might not always look quite as terrific as it does today, but we think it’s a good bet that advisors and their clients can trust Shive to do, as he puts it, something intelligent with their money. K Christine Benz recently became Morningstar’s director of personal finance and editor of Practical Finance after serving as director of fund analysis for two years. Top 10 Holdings Stock Morningstar Rating QQQ Moat Archer Daniels Midland ADM C.R. Bard BCR AT&T T Novartis AG NVS Marathon Oil MRO Allstate ALL General Electric GE Hewlett-Packard HPQ Johnson & Johnson JNJ Raython RTN March 31, 2008. None — Narrow Wide None Narrow Wide Narrow Wide Narrow If all of this makes the fund sound like the most unlikely sort of bank-run offering, that’s exactly the point. Bank mutual funds are notoriously buttoned-down, often targeting fully invested, style-specific portfolios and returns that land in a category’s middle two quartiles. By contrast, Shive’s flexible, nimble approach and goal of delivering all-weather performance are a breath of fresh air. “He’s certainly not your typical highly conservative bank manager,” concurs Paul, the Indiana advisor. “He’s what I’d call ‘reasonably aggressive,’ meaning that he’s aggressive about making money and also aggressive about preserving it.” — QQQ QQQQQ QQQQQ QQQQ QQQ QQQ QQQQQ QQ Portfolio holdings as of Dec. 31, 2007. Stock data as of 62 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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