Morningstar Advisor - February/March 2010 - 37

Spain United Kingdom Álvaro Martinez, Cayetano Cornet, and Juan Bertrán founded the Spanish boutique firm Cartesio Inversiones in 2004. The Madrid firm offers only two balanced strategies— both of which hold an Elite rating from Morningstar. EDM Gestión is a Barcelona-based boutique that looks for highquality, high-sustainable-growth stocks. The firm typically runs concentrated portfolios, and two of its funds—EDM Inversion and EDM Valores Uno—earn Superior ratings from Morningstar. Antoni Estabanell is the firm’s chief investment officer. José Ramón Iturriaga is a partner at the Madrid-based firm Abante Asesores, where he runs the Okavango Delta Fund, which follows an absolutereturn target, mainly through cash and equity investments. Stewart Cowley joined Old Mutual Asset Managers in 2009 as head of fixed income. He brings an excellent pedigree in global-bond management. He built the bond franchise at Mellon (now part of BNY) from $50 million to more than $2 billion in nine years. Nick Gartside is head of global fixed income at Schroders in London. In his Strategic Bond fund, he leaves credit selection to his colleagues and focuses on getting the macro picture right. His tenure in this style is short, but we hold Schroders in high regard and think recent changes in the fixed-income teams will be beneficial. smaller, provincial banks in the U.S. are likely to go under. The governments are pumping money into the system, but it’s not propelling either economy forward. I’ve been buying U.S. and U.K. short-term inflation-linked bonds as an insurance policy, in case the markets lose patience with quantitative easing policies and currencies get sent markedly lower and inflation scares kick in. Lowenstein: U.S. bond markets look risky, not have a clear trend. Good stock-pickers will have a good year. Q: How worried should investors be about the U.S. dollar? What is the alternative to a single global currency? Moore: The U.S. dollar is cheap. Short term, it’s a buy, long term is dependant on economic policy. I struggle with what alternative there is to the current single global currency, but clearly the Chinese cannot be tied to the dollar long term. They are economically a de facto State of America under their current tied-dollar policy, and this is not sustainable. Magellan Global: Some commentators have suggested that the U.S. dollar is impaired, and we simply ask, Relative to whom, the Japanese yen, euro, British pound, Australian dollar? For example, consider the Australian dollar, the best performing major currency of 2009. The AUD has benefitted largely from its current interest-rate differential and short-term economic performance; however, the long-term outlook is much less certain, as it has a relatively weak current account position and net foreign investment position--both causing significant ongoing obligations to transfer Australian dollars offshore. Cowley: The dollar will decline over time as the focus shifts to other reserve currencies. Only the Japanese are supporting it. Investors are focusing more on the yen and euro. Lowenstein: U.S. dollar weakness, whether as a result of deliberate U.S. policy or market anxiety, will be a fixture until the Chinese finally allow the renminbi to adjust or even float. The argument is complicated, however, by the fact that good cases can be made for why most currencies in the developed world should fall, with the possible exceptions of the yen, the won, and the Singapore and Hong Kong dollars. But they can’t all fall against each other. For this reason, we hold large amounts of gold and in gold ounce accounts at the West Australian mint, rather than ETFs to minimize expropriation risk. Cartesio Inversiones: Every man and his dog especially if yields at the long end of the Treasury market start to blow out. Álvaro Martinez, Cayetano Cornet, and Juan Bertrán, Cartesio Inversiones, Spain: Government bond markets are priced to deliver low nominal and real returns for the foreseeable future. Unless Japan II takes place at a global level, this is likely a bad place to be. Regarding the stock market, we see the current consolidation as a sign of underlying strength but believe strongly a rotation is taking place away from financials and other high beta into undervalued, cash-generative, and more-defensive names. We see the opportunities in pharma, telecom, utilities, and staples. Antoni Estabanell, EDM Gestion, Spain: U.S. have nothing but fear and loathing of the dollar, and for good reason. A dollar collapse will put pressure on China more than Europe. A dollar decline is “painless” way of defaulting and regaining competitiveness for the U.S. A single global currency is too nice of a concept—like peace and love. Currency blocs will form—euro, dollar, reminbi—and each will seek to attack and defend. Estabanell: Investing in currencies is not stock and bond markets are reasonably valued, but long rates may increase in 2010, so durations must be cut. The stock market will investing; fundamentals are not important. MorningstarAdvisor.com 37

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Morningstar Advisor - February/March 2010

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