Morningstar Advisor - October/November 2009 - 49

Johnson is the lead manager of Harding Loevner Emerging Markets HLEMX as well as a comanager of Harding Loevner Frontier Emerging Markets HLFMX. His high-quality 28000 growth strategy has delivered strong 26000 24000 22000 long-term returns with relatively moderate 20000 volatility during his 11-year tenure at 18000 16000 Harding Loevner Emerging Markets. Divecha 14000 12000 has led the charge at GMO Emerging 10000 8000 Markets III GMOEX for more than 15 years. His 6000 mostly quantitative—but augmented by fundamental analysis—approach has produced strong results during his tenure. Divecha was recently promoted to be the chairman of the firm, after Jeremy Grantham, GMO’s famously contrarian market prognosticator, stepped down from that role. Foster is the skipper at Matthews Asian Growth and Income MACSX. He is among the thought leaders at Matthews’ formidable group of Asia experts. The firmwide focus on domestic growth and lesser-known stocks gives investors at Matthews funds a distinct, off-the-beatentrack look at Asian markets. Clearly, a decoupling to the West and developed markets cannot happen on the export side. If developed markets do not recover, demand does not recover, and the export engine is going to stay broken for a while. On the other hand, we have the domestic consumption. This is where you’ve seen the new decoupling that people recently have been talking about. Domestic demand and consumption have been stimulated through massive fiscal and monetary spending. It is working as you would expect it to, because for most of these countries, this is not a structural crisis; it is a cyclical crisis. The United States and developed markets, for the most part, have had a structural crisis; they will have to change their financial systems coming out of this. That’s not true for emerging markets. GMO Emerging Markets III GMOEX $28K 10 05 06 MSCI EAFE GR 07 08 09 Category Diversified Emerging Markets Morningstar Rating Expense Ratio (%) 1.10 5-Yr Anl Total Rtn (%) 15.32 5-Yr Anl TR % Rank Cat 35 QQQQ Minimum Investment $50 million Data as of Aug. 31, 2009. Rusty Johnson: I agree. To say that emerging markets can be completely delinked from developed markets, as big as they are, is just 28000 logical. True, the big economies are not 26000 24000 slowing and the growth rate of the emerging22000 20000market economies is likely to be lower, The conversation has been edited for clarity 18000 but and length. 16000 they’re probably not going to be directly 14000 linked. Another aspect that has created 12000 10000 this illusion of a complete decoupling is the Arijit Dutta: About a year ago, there was 8000 6000 much talk about decoupling and that emerging credit issue. In December, January, markets would escape the crisis. The February, credit froze up around the world. crisis didn’t originate in emerging markets, Nobody knew what was going to happen. people argued, and emerging markets Corporates understandably were afraid even in now had their own growth engines. In late developing economies. This was a period 2008, both those theories were shot when the developing economies did look like to hell. Yet now it seems like the decoupling they were plunging with the world. But it was argument is arising again. What are your short-lived. thoughts on this topic? Andrew Foster: Decoupling is not necessarily Arjun Divecha: First of all, the idea of using a Jan-05Jun-05Nov-05Apr-06Sep-06Feb-07 Jul-07 Dec-07May-08Oct-08Mar-09Aug-09 Feb-05 Jul-05 Dec-05May-06Oct-06Mar-07Aug-07Jan-08Jun-08Nov-08Apr-09Sep-09 Mar-05Aug-05Jan-06Jun-06Nov-06Apr-07Sep-07Feb-08 Jul-08 Dec-08May-09 Apr-05Sep-05Feb-06 Jul-06 Dec-06May-07Oct-07Mar-08Aug-08Jan-09Jun-09 May-05Oct-05Mar-06Aug-06Jan-07Jun-07Nov-07Apr-08Sep-08Feb-09 Jul-09 Loevner Emerging Markets HLEMX $28K 10 05 06 MSCI EAFE GR Category Diversified Emerging Markets Morningstar Rating Expense Ratio (%) 1.61 5-Yr Anl Total Rtn (%) 15.41 5-Yr Anl TR % Rank Cat 31 QQQQ Minimum Investment $5,000 Data as of Aug. 31, 2009. single concept called decoupling to encapsulate a whole range of complex issues is very narrow-minded. There is not a single dimension to emerging markets. Having said that, the way I think of most emerging economies is that they are like a boat with two engines. One engine is export-driven; the other engine is domestic consumption. a desirable state. The biggest emerging markets, like China and India, have grown because they have coupled with the rest of the world. It’s the export engine that Arjun was talking about. But it’s also very much the fact that these markets open themselves up for business domestically to external competition. It’s been that very favorable coupling that’s taken place that has powered the growth over the past two decades. Jan-05Jun-05Nov-05Apr-06Sep-06Feb-07 Jul-07 Dec-07May-08Oct-08Mar-09Aug-09 Feb-05 Jul-05 Dec-05May-06Oct-06Mar-07Aug-07Jan-08Jun-08Nov-08Apr-09Sep-09 Mar-05Aug-05Jan-06Jun-06Nov-06Apr-07Sep-07Feb-08 Jul-08 Dec-08May-09 Apr-05Sep-05Feb-06 Jul-06 Dec-06May-07Oct-07Mar-08Aug-08Jan-09Jun-09 May-05Oct-05Mar-06Aug-06Jan-07Jun-07Nov-07Apr-08Sep-08Feb-09 Jul-09 True decoupling—what we see in North Korea and Pakistan, where domestic events and politics are so strained that the economies are severed from the world—is undesirable. Also, building on what Rusty said, the credit hiccup hit emerging markets because their capital markets are just not as deep yet as the developed markets. The bond markets in MorningstarAdvisor.com 49
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Morningstar Advisor - October/November 2009

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2009

Morningstar Advisor - October/November 2009
Contents
New on MorningstarAdvisor.com
Letter from the Editor
Contributors
How Do You Use Behavioral Finance in Your Practice?
Investing in the Moment
Investment Briefs
How the Best Large-Cap Managers Rise Above the Rest
Don’t Give Up on Stocks Just Yet
Makeup of the Mind
A Top-Down Approach
In Practice: Patterns of Investor Irrationality
A Call for Nudges
The Furious Comeback of Emerging Markets
Junk-Bond Pioneer
Four Picks for the Present
Consumer Staples Hold Up in the Kitchen
Familiarity Can Breed Bad Investment Decisions
Leave the ‘Junk Rally’ Behind and Look for Quality at a Reasonable Price
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
New at Morningstar
Meet the New Boss, Same (School) as the Old Boss
Morningstar Advisor - October/November 2009 - Morningstar Advisor - October/November 2009
Morningstar Advisor - October/November 2009 - Cover2
Morningstar Advisor - October/November 2009 - 1
Morningstar Advisor - October/November 2009 - 2
Morningstar Advisor - October/November 2009 - Contents
Morningstar Advisor - October/November 2009 - 4
Morningstar Advisor - October/November 2009 - 5
Morningstar Advisor - October/November 2009 - New on MorningstarAdvisor.com
Morningstar Advisor - October/November 2009 - 7
Morningstar Advisor - October/November 2009 - 8
Morningstar Advisor - October/November 2009 - Letter from the Editor
Morningstar Advisor - October/November 2009 - Contributors
Morningstar Advisor - October/November 2009 - 11
Morningstar Advisor - October/November 2009 - How Do You Use Behavioral Finance in Your Practice?
Morningstar Advisor - October/November 2009 - 13
Morningstar Advisor - October/November 2009 - 14
Morningstar Advisor - October/November 2009 - Investing in the Moment
Morningstar Advisor - October/November 2009 - 16
Morningstar Advisor - October/November 2009 - 17
Morningstar Advisor - October/November 2009 - 18
Morningstar Advisor - October/November 2009 - Investment Briefs
Morningstar Advisor - October/November 2009 - 20
Morningstar Advisor - October/November 2009 - 21
Morningstar Advisor - October/November 2009 - How the Best Large-Cap Managers Rise Above the Rest
Morningstar Advisor - October/November 2009 - 23
Morningstar Advisor - October/November 2009 - 24
Morningstar Advisor - October/November 2009 - 25
Morningstar Advisor - October/November 2009 - 26
Morningstar Advisor - October/November 2009 - Don’t Give Up on Stocks Just Yet
Morningstar Advisor - October/November 2009 - 28
Morningstar Advisor - October/November 2009 - 29
Morningstar Advisor - October/November 2009 - Makeup of the Mind
Morningstar Advisor - October/November 2009 - 31
Morningstar Advisor - October/November 2009 - A Top-Down Approach
Morningstar Advisor - October/November 2009 - 33
Morningstar Advisor - October/November 2009 - 34
Morningstar Advisor - October/November 2009 - 35
Morningstar Advisor - October/November 2009 - 36
Morningstar Advisor - October/November 2009 - 37
Morningstar Advisor - October/November 2009 - 38
Morningstar Advisor - October/November 2009 - 39
Morningstar Advisor - October/November 2009 - In Practice: Patterns of Investor Irrationality
Morningstar Advisor - October/November 2009 - 41
Morningstar Advisor - October/November 2009 - 42
Morningstar Advisor - October/November 2009 - A Call for Nudges
Morningstar Advisor - October/November 2009 - 44
Morningstar Advisor - October/November 2009 - 45
Morningstar Advisor - October/November 2009 - 46
Morningstar Advisor - October/November 2009 - 47
Morningstar Advisor - October/November 2009 - The Furious Comeback of Emerging Markets
Morningstar Advisor - October/November 2009 - 49
Morningstar Advisor - October/November 2009 - 50
Morningstar Advisor - October/November 2009 - 51
Morningstar Advisor - October/November 2009 - 52
Morningstar Advisor - October/November 2009 - 53
Morningstar Advisor - October/November 2009 - 54
Morningstar Advisor - October/November 2009 - Junk-Bond Pioneer
Morningstar Advisor - October/November 2009 - 56
Morningstar Advisor - October/November 2009 - 57
Morningstar Advisor - October/November 2009 - Four Picks for the Present
Morningstar Advisor - October/November 2009 - 59
Morningstar Advisor - October/November 2009 - 60
Morningstar Advisor - October/November 2009 - Consumer Staples Hold Up in the Kitchen
Morningstar Advisor - October/November 2009 - 62
Morningstar Advisor - October/November 2009 - 63
Morningstar Advisor - October/November 2009 - Familiarity Can Breed Bad Investment Decisions
Morningstar Advisor - October/November 2009 - 65
Morningstar Advisor - October/November 2009 - Leave the ‘Junk Rally’ Behind and Look for Quality at a Reasonable Price
Morningstar Advisor - October/November 2009 - 67
Morningstar Advisor - October/November 2009 - Mutual Fund Analyst Picks
Morningstar Advisor - October/November 2009 - 69
Morningstar Advisor - October/November 2009 - 70
Morningstar Advisor - October/November 2009 - 71
Morningstar Advisor - October/November 2009 - 50 Most Popular Equity ETFs
Morningstar Advisor - October/November 2009 - 73
Morningstar Advisor - October/November 2009 - Undervalued Stocks
Morningstar Advisor - October/November 2009 - 75
Morningstar Advisor - October/November 2009 - 76
Morningstar Advisor - October/November 2009 - 77
Morningstar Advisor - October/November 2009 - 78
Morningstar Advisor - October/November 2009 - New at Morningstar
Morningstar Advisor - October/November 2009 - Meet the New Boss, Same (School) as the Old Boss
Morningstar Advisor - October/November 2009 - Cover3
Morningstar Advisor - October/November 2009 - Cover4
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