Morningstar Advisor - Spring 2008 - 69

00 00 0 0 Income A host of firms, many in the beleaguered financials sector, have slashed their dividends recently amid housing- and subprime-induced stress. Not that the problems have been confined to stocks alone, as investors in CDOs and various other exotic debt instruments can well attest. The moral to the story is that a big yield does not a safe investment make. Underlying fundamentals matter a great deal, so with that in mind, here’s a short list of investments that sport attractive income payouts yet hold up when we scrutinize the fundamental case, whether it emanates from a skilled, proven active manager or a firm whose business is founded on durable competitive advantages. Overview by Jeffrey Ptak guered real-estate firms trim dividends in the current market downturn, this offering will still throw off a ton of income. Pfizer PFE $21K 17 13 S&P 500 03 04 05 06 07 08 Cohen & Steers Realty Income $26K 22 18 S&P 500 03 04 05 06 07 08 S Pfizer’s size establishes the largest economy of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs. Its strength is evidenced by the 150-plus drugs in its pipeline and 15 new drug approvals in the past four years. Recently approved Sutent and Chantix are poised to be the next generation of blockbusters; we estimate that they can each generate well more than $1 billion in annual sales within the next several years. We expect that this will not only help insulate the firm against declining revenues from its Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 cholesterol drug Lipitor, but will augment the firm’sNov-03Jul-04Mar-05Nov-05Jul-06 Apr-07 Feb-08 Feb-03Oct-03Jun-04Feb-05Oct-05Jun-06Feb-07Oct-07 Mar-03 prodigious $10Jul-05 Mar-06 Dec-06 Sep-07 Apr-03 Feb-04Oct-04Jun-05 Apr-06 Mar-07 flow. May-03 Mar-04 Jun-03 May-04 Apr-05Dec-05annualMay-07 Jul-03 Aug-03 Aug-04 Aug-05 May-06 Sep-03 Sep-04 billion in Aug-06 cash Sep-05 Sep-06 Jun-07 Oct-06 Jul-07 Nov-06 Aug-07 Apr-04Dec-04 Dec-07 WhileDec-03 Nov-04 cash is earmarked Nov-07 a portion of May-05 Feb-06 this for future research and development, management is also committed to returning capital to shareholders. Thus, current investors have a relatively safe dividend yield of 5.3% and are getting paid to wait for Pfizer’s growth engine to restart. The goal here is to provide inexpensive exposure to the inflation-protected bond market. Some rivals in the inflation-protected bond category have taken steps like holding unhedged non-U.S. bond stakes or assetbacked securities to boost returns. This fund doesn’t take such steps. Instead, managers Ken Volpert and John Hollyer stick mainly with TIPS and make small tilts related to TIPS auctions and on spreads between nominal Treasuries and TIPS. It is cheap, has straightforward exposure, and the best part is that this fund provides investors with some protection against one of the biggest risks they face—that is, purchasing power. This fund is guaranteed to move in sync with inflation and provide returns that are in line with investors’ purchasing power needs. It remains one of our favorites for investors looking to guard against inflation. 14000 12000 10000 SA This separate account is a nice contrarian bet, and you get paid while you wait for a turnaround. Real estate securities have been crushed over the past year, and this strategy has taken its lumps, losing 18% in 2007. But, it looks attractive now. Cohen & Steers is a boutique shop with a long track record of successful real-estate investing, emphasizing firms with attractive assets and growth Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 prospects. This separate account now yields Feb-03Oct-03Jun-04Feb-05Oct-05Jun-06Feb-07Oct-07 Mar-03 Dec-03 Sep-04 Jun-05Feb-06Oct-06Jun-07Feb-08 Apr-03 Feb-04Oct-04 Jul-05 Mar-06 Mar-07 Dec-07 May-03 Apr-04 Mar-05 Dec-05 Sep-06 Jul-07 Jun-03 May-04 Apr-05 Apr-06 Apr-07 Jul-03 Aug-03 Jul-04 May-05 May-06 May-07 Sep-03 Aug-04 Aug-05 Jul-06 Nov-03 Sep-05 Aug-06 Aug-07 Nov-05 Nov-06 Sep-07 Nov-07 6.2%. And even if that rate dropsDec-06 as beleaMar-04 Dec-04 Nov-04 Vanguard Inflation-Protected Secs VIPSX $14K 12 LB Aggregate Bond 03 04 05 06 07 08 Growth The one part of the growth market that looks more attractively valued than others is large-cap growth. Looking at the Morningstar Large Cap Growth Index, over the past 10 years the average annual return for these growth stocks has been a negative 1.06%. Many of the firms in this index have seen solid earnings growth year in and year out, but their stock prices have declined as the multiple on those earnings contracted. Now, however, our research shows that the downside in some of these stocks is very low and the upside potential very good. Thus, we believe that for investors with a low risk tolerance, some large-cap growth names have the potential to do well while also affording investors a good night’s sleep. Overview by Justin Fuller MF There are few uncertainties with this fund. MorningstarAdvisor.com 69
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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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