Morningstar Advisor - Winter 2008 - 46

Spotlight Our focus is on trying to find the best managers within a certain investment style. But we don’t try to be too style pure. Bill Harding, Director of Reseasrch, Morningstar Investment Services what you’ve hired him to do, or do you cut back the exposure to get back to the overall mix where you want to be over time? Which can raise concerns about risk—the manager has done well by going against the grain, but if he or she is wrong this time… JM: And then everybody’s going against the grain in the same manner. Your job as a manager of managers, overseeing a fund of funds, is to make the decision of when to cut back on the weights that everybody’s given me in this portfolio. BH: We don’t have set parameters in terms of how much we’re willing to deviate in style, but we are very aware of the overall positioning. We monitor overall risk for the portfolio, and we regularly monitor and update how we’re allocating among large/mid/small and growth/value. We pull in all the Morningstar data monthly, and we can see what the portfolio’s exposures versus our strategic benchmark. We make sure we’re comfortable with it, that things aren’t too far out of whack. Is market-cap creep the most common type of drift that you see? BH: That’s the one we pay more attention to. With growth-versus-value, I think you have to be somewhat careful because portfolio managers look for both growth and value, so even value-oriented managers are going to say that they would like their stocks to have some growth characteristics as well, they’re just not going to pay up for it. So we’re willing to give managers more leeway, to allow them some flexibility to try to take advantage of opportunities. But the market-cap sizes—small, mid, and large—are where it’s more clear. A lot of times, managers start off with a rigid mandate; they’ll only pick stocks up to a $1 billion, for example. Then, over time, they relax that mandate, and then all of the sudden, you see in their prospectus that they’ve expanded their market-cap all way up to $2 billion or more. Current Style Allocations Here are some recent style breakdowns for portfolios managed by Jeff McConnell’s and Bill Harding’s teams: TA IDEX Growth Portfolio 21 7 2 20 8 2 26 11 4 Moderate Growth Strategy 23 6 2 24 6 2 29 5 3 managers have made as growth stocks have become a lot more appealing from a valuation perspective over the past six years (prior to 2007), but because we agree with the sentiment we have allowed the overweight there to remain in place. BH: We overweight large-cap stocks in our moderate growth strategy and other portfolios relative to our benchmark due to our opinion that the represent the most compelling valuation opportunity within the equity segment of the market. Large-cap stocks are trading at attractive valuations relative to small-cap stocks, which had enjoyed a long run of performance over large caps until recently. In particular, we overweight the large-growth segment of the domestic-equity market as valuations among large-growth stocks have not Data as of Sept. 30, 2007 and Dec. 14, 2007 JM: Our capitalization weights in the TA IDEX fund are close to our long-term targets. If we’re going to tilt in any direction right now, we’ll probably overweight large-cap stocks relative to our targets owing to their long-term underperformance of smaller caps. We are tilted toward growth stocks right now. That’s largely the result of the moves our underlying been this attractive in over 10 years. We also would note that during this stage of an economic cycle, where overall economic growth is decelerating, companies that can deliver sustainable above-average growth rates (i.e. growth stocks) tend to fare relatively well. More cyclical sectors of the market that tend to have their fortunes tied to overall economic growth may face a stiffer headwind and those sectors tend to be more represented in value benchmarks. Part of the overweight to growth has come from the actions of our underlying fund managers. We have noticed many managers who employ value disciplines have found opportunities in traditional growth stocks as their stock prices have generally not kept up with the companies’ earnings and cash flow growth. Finally, large-cap companies tend to be more global and many are benefiting from having significant exposure to overseas economies that are growing at a faster clip than the U.S. 46 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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