Morningstar Advisor - Winter 2008 - 18

Investment Briefs Large-Cap Stocks Poised to Make a Run After underperforming their smaller counterparts for more than a decade, large caps seem to be poised for a good run, says Morningstar research and communications manager Jim Licato. Over the past 15 years, both small-cap and large-cap stocks have produced periods of outperformance when compared with one another. From 1994 to 1999, large stocks (as represented by Morningstar indexes) outperformed every year while compiling an average annual return that doubled that of small stocks—24.4% compared with 12.2%. Starting in 2000, however, small stocks began an impressive run of their own, topping large stocks every year through 2006. While large-cap stocks generated a negative annual return of 0.4% over this period, small-cap stocks flourished, returning 10.3% annually. The past year marked a significant turnaround for large-cap performance. In 2007, large-cap stocks were up 6.7% while small-cap stocks were in the red by 0.7%. Moreover, across all styles (growth, value, and core), large caps exceeded the performance of small caps. suited to survive turbulent and uncertain times because of the vast amount of resources at their disposal. Large firms tend to have larger reserves to carry them through economic downturns. Furthermore, with the U.S. dollar continuing to weaken, large companies that derive a significant portion of their revenues from overseas should continue to reap the benefits and should be in a good position to prosper even if the U.S. economy does indeed falter, as many have predicted. Large companies are also more likely than smaller companies to pay dividends, providing investors with a steady stream of income during tough times and adding to their total return potential. minted managers to mentor the newer analysts as well as the veterans, given their relative inexperience. Advisor Workstation subscribers can read more about Janus’ Stewardship Grade in the Janus funds’ Quicktake reports. Berkshire Heeds Our Tip (We’d Like to Think) Morningstar StockInvestor editor Paul Larson has stuck with CarMax KMX through thick and thin, holding the stock in the newsletter’s Hare Portfolio since January 2004. (He also personally owns shares.) The used-car dealer had a rough 2007, but it wasn’t enough to shake Larson’s confidence in the stock. He resisted the urge to trim his position, even though at 13.7% (as of Nov. 30, 2007), it was nearly twice that of No. 2 holding Compass Minerals CMP. Larson’s faith was rewarded—or at least his conviction was strongly reinforced—when in November Berkshire Hathaway BRK.B announced that it had purchased 14 million CarMax shares, representing a 6.4% stake in the company. Adding to the luster of that news was the fact that at the Berkshire Hathaway annual meeting in May, he and colleagues handed out thousands of sample copies of Morningstar StockInvestor. Included was an article titled, “Three Stocks Buffett Should Consider.” CarMax was one of those stocks. (The other two were Compass Minerals and Novartis NVS, both of which Larson personally owns and are in StockInvestor portfolios.) Larson has no proof that Warren Buffett, Charlie Munger, Lou Simpson, or anyone else at Berkshire saw the report. Still, he can’t help but wonder: Did someone at Berkshire start kicking CarMax’s tires based on a free suggestion from Morningstar? Janus Departures Hurt Stewardship Grade After a string of high-profile manager departures late last year, Morningstar analysts lowered Janus’ corporate culture grade to D from C. Corporate culture is one of five components that make up the a fund’s overall Stewardship Grade. The departures of talented managers David Corkins (Janus Fund JANSX), Minyoung Sohn (Janus Fundamental Equity JAEIX and Growth & Income JAGIX), and Scott Schoelzel (Janus Twenty JAVLX) were the most concerning, although the exodus wasn’t limited to investment personnel. The firm’s CFO, general counsel, and head of institutional sales also called it quits in 2007. The reasons why the managers have been leaving are unclear, but we assume that there is some disagreement about whether the firm is headed in the right direction. Whatever the reason, Janus is now left with very few proven managers. There are still some good veteran managers around, and we think Janus has some strong analysts to fill the gaps, but the overall bench is weaker. Janus will have to move quickly to replenish the analyst pool with new talent. And it will be hard for freshly Performance Differential Between Large and Small Stocks 40% 30 20 10 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Small Outperforms Large Large Outperforms Small With the housing market still suffering and the credit crisis an ongoing concern, the United States’ economic health has seen better days. With such fears on the rise, large-cap stocks might continue to perform well in 2008 and beyond. Large companies are typically better 18 Morningstar Advisor Winter 2008

Morningstar Advisor - Winter 2008

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

Morningstar Advisor - Winter 2008
Contents
Letter from the Editor
Inbox
How Do You Use the Morningstar Style Box?
Real Estate Investing Goes Global
The Golden Touch
Investment Briefs
Learning to Fly with Equity Options
Another Block in Building a Portfolio
In a League of Their Own
Unlock the Box
Fashion Change
The View from the Investment Side
Unpredictable Style
Weighting the Fundamentals
Wire-to-Wire Consistency
The Secret's Out
Focus on Financials
Strongest Homebuilders Will Withstand the Wrecking Ball
Breaking Style Conventions
Playing It Safe with Financials
Back to Bond School
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
The Style Counsel
Morningstar Advisor - Winter 2008 - Intro
Morningstar Advisor - Winter 2008 - Morningstar Advisor - Winter 2008
Morningstar Advisor - Winter 2008 - Cover2
Morningstar Advisor - Winter 2008 - 1
Morningstar Advisor - Winter 2008 - 2
Morningstar Advisor - Winter 2008 - Contents
Morningstar Advisor - Winter 2008 - 4
Morningstar Advisor - Winter 2008 - 5
Morningstar Advisor - Winter 2008 - 6
Morningstar Advisor - Winter 2008 - Letter from the Editor
Morningstar Advisor - Winter 2008 - 8
Morningstar Advisor - Winter 2008 - Inbox
Morningstar Advisor - Winter 2008 - How Do You Use the Morningstar Style Box?
Morningstar Advisor - Winter 2008 - 11
Morningstar Advisor - Winter 2008 - Real Estate Investing Goes Global
Morningstar Advisor - Winter 2008 - 13
Morningstar Advisor - Winter 2008 - 14
Morningstar Advisor - Winter 2008 - The Golden Touch
Morningstar Advisor - Winter 2008 - 16
Morningstar Advisor - Winter 2008 - 17
Morningstar Advisor - Winter 2008 - Investment Briefs
Morningstar Advisor - Winter 2008 - 19
Morningstar Advisor - Winter 2008 - 20
Morningstar Advisor - Winter 2008 - 21
Morningstar Advisor - Winter 2008 - Learning to Fly with Equity Options
Morningstar Advisor - Winter 2008 - 23
Morningstar Advisor - Winter 2008 - 24
Morningstar Advisor - Winter 2008 - 25
Morningstar Advisor - Winter 2008 - Another Block in Building a Portfolio
Morningstar Advisor - Winter 2008 - 27
Morningstar Advisor - Winter 2008 - 28
Morningstar Advisor - Winter 2008 - 29
Morningstar Advisor - Winter 2008 - In a League of Their Own
Morningstar Advisor - Winter 2008 - 31
Morningstar Advisor - Winter 2008 - 32
Morningstar Advisor - Winter 2008 - 33
Morningstar Advisor - Winter 2008 - 34
Morningstar Advisor - Winter 2008 - 35
Morningstar Advisor - Winter 2008 - Unlock the Box
Morningstar Advisor - Winter 2008 - 37
Morningstar Advisor - Winter 2008 - 38
Morningstar Advisor - Winter 2008 - 39
Morningstar Advisor - Winter 2008 - Fashion Change
Morningstar Advisor - Winter 2008 - 41
Morningstar Advisor - Winter 2008 - 42
Morningstar Advisor - Winter 2008 - 43
Morningstar Advisor - Winter 2008 - The View from the Investment Side
Morningstar Advisor - Winter 2008 - 45
Morningstar Advisor - Winter 2008 - 46
Morningstar Advisor - Winter 2008 - 47
Morningstar Advisor - Winter 2008 - 48
Morningstar Advisor - Winter 2008 - 49
Morningstar Advisor - Winter 2008 - 50
Morningstar Advisor - Winter 2008 - 51
Morningstar Advisor - Winter 2008 - Unpredictable Style
Morningstar Advisor - Winter 2008 - 53
Morningstar Advisor - Winter 2008 - Weighting the Fundamentals
Morningstar Advisor - Winter 2008 - 55
Morningstar Advisor - Winter 2008 - 56
Morningstar Advisor - Winter 2008 - 57
Morningstar Advisor - Winter 2008 - 58
Morningstar Advisor - Winter 2008 - 59
Morningstar Advisor - Winter 2008 - 60
Morningstar Advisor - Winter 2008 - 61
Morningstar Advisor - Winter 2008 - Wire-to-Wire Consistency
Morningstar Advisor - Winter 2008 - 63
Morningstar Advisor - Winter 2008 - 64
Morningstar Advisor - Winter 2008 - 65
Morningstar Advisor - Winter 2008 - The Secret's Out
Morningstar Advisor - Winter 2008 - 67
Morningstar Advisor - Winter 2008 - 68
Morningstar Advisor - Winter 2008 - 69
Morningstar Advisor - Winter 2008 - Focus on Financials
Morningstar Advisor - Winter 2008 - 71
Morningstar Advisor - Winter 2008 - 72
Morningstar Advisor - Winter 2008 - 73
Morningstar Advisor - Winter 2008 - Strongest Homebuilders Will Withstand the Wrecking Ball
Morningstar Advisor - Winter 2008 - 75
Morningstar Advisor - Winter 2008 - Breaking Style Conventions
Morningstar Advisor - Winter 2008 - 77
Morningstar Advisor - Winter 2008 - Playing It Safe with Financials
Morningstar Advisor - Winter 2008 - 79
Morningstar Advisor - Winter 2008 - 80
Morningstar Advisor - Winter 2008 - Back to Bond School
Morningstar Advisor - Winter 2008 - 82
Morningstar Advisor - Winter 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Winter 2008 - 84
Morningstar Advisor - Winter 2008 - 85
Morningstar Advisor - Winter 2008 - 86
Morningstar Advisor - Winter 2008 - 87
Morningstar Advisor - Winter 2008 - Undervalued Stocks
Morningstar Advisor - Winter 2008 - 89
Morningstar Advisor - Winter 2008 - 90
Morningstar Advisor - Winter 2008 - 91
Morningstar Advisor - Winter 2008 - Most Popular Variable Annuities
Morningstar Advisor - Winter 2008 - 93
Morningstar Advisor - Winter 2008 - New at Morningstar
Morningstar Advisor - Winter 2008 - 95
Morningstar Advisor - Winter 2008 - The Style Counsel
Morningstar Advisor - Winter 2008 - Cover3
Morningstar Advisor - Winter 2008 - Cover4
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