Morningstar Advisor - August/September 2010 - 9

Letter From the Editor

In Good Shape
Whatever your opinion of the health-care reform bill (judging from the comments in our On Topic section on Page 10, I’m assuming a lot of you don’t have a favorable view), here’s one aspect of it you are sure to like: Reform has helped create an excellent investing opportunity for health-care stocks, according to Morningstar’s team of health-care analysts. From the day the bill became law on March 23 through July 13, the Morningstar Health-Care Index declined by 9.7%, while the S&P 500 fell by only 5.5%. Investors, meanwhile, battered leading names of the sector, including Abbott Labs (negative 9.9%) Baxter (negative 26.2%), Covidien (negative 19.7%), Pfizer (negative 12.9%), and Sanofi-Aventis (negative 15.9%)—all names that Morningstar considers to have narrow or wide moats (sizable competitive advantages over the competition). In this issue’s Spotlight section (“Health Care Gets Back to Business,” Page 27), we make the case that investors are overreacting to the ramifications of reform and ignoring the long-term strengths of the industry. Our health-care team, led by equities strategist Damien Conover, focuses on two sectors— pharmaceuticals and diagnostic services—to demonstrate this point. Companies in each of these sectors, our analysts say, can benefit from the reform bill and are finding fruitful opportunities in new niches and areas around the world. Many of them can be purchased at prices under Morningstar’s fair value estimates. In the Morningstar Conversation (“Health-Care Investing Alive and Well,” Page 41), Conover talks with two investors who each have a decade of experience managing health-care mutual funds: Andy Acker, of Janus Global Life Sciences JAGLX, and Kris Jenner, of T. Rowe Price Health Sciences PRHSX. Acker and Jenner discuss how they’re repositioning their portfolios after reform, the market for mergers and acquisitions, and which scientific fields have the most-promising innovations. A new section debuts in this issue. In Practice is a look at how the investment team at Morningstar Investment Services assembles a portfolio that addresses a particular need— in this case a bond portfolio that offers some protection against inflation (“How to Make Your Bond Portfolio Inflation-Resistant,” Page 54). Using a combination of TIPS, bank loans, high-yield bonds, and other instruments, investment manager Marta Norton, who helps run Morningstar’s managed portfolios, shows how investors who must rely on fixed income can have more than a fighting chance against inflation. In Gray Matters, mutual fund analyst Christopher Davis takes a hard look at Fidelity Advisor Funds (“Advisors Can’t Rely on Fidelity Alone,” Page 22) and says that although the family has some funds led by talented managers, Fidelity’s lack of depth in its manager ranks hurts the appeal of many of the offerings. Mediocrity is something that advisor Iris Mack Dayoub doesn’t accept for herself or her clients. Dayoub is the subject of editorial director Laura Pavlenko Lutton’s Advisor Profile (“Eye on the Prize,” Page 19). At age 73, Dayoub is a triathlete who enters Ironman competitions. She also uses her energy to help clients make good decisions, ensuring “their heads, hearts, and actions are in a straight line,” she tells Lutton. After all, that’s the best way to finish a race.

Jerry Kerns

Correction

In a Screens article last issue (“On the Prowl for Smooth Operators,” Page 68), we got some operators wrong. Audited Expense Ratio should be less than or equal to 1.50; % Rank Cat 3 Yr should be less than or equal to 33; Tot Ret Annlzed 10 Yr should greater than or equal to 2; and Manager Tenure should be greater than or equal to 10.

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9


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Morningstar Advisor - August/September 2010

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2010

Morningstar Advisor - August/September 2010
Contents
New on MorningstarAdvisor.com
Contributors
Letter From the Editor
What Aspects of Health-Care Reform Will Most Affect Your Clients?
Bonds, Chicago Style
Investment Briefs
Which Risk Are You Managing?
Eye on the Prize
Advisors Can’t Rely on Fidelity Alone
Health Care Gets Back to Business
An Opportune Time to Bet the Pharm
Reform’s Impact on Other Health-Care Industries
Top Takeover Targets in Biotech
After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Health-Care Investing Alive and Well
Quest for Knowledge
Four Picks for the Present
How to Make Your Bond Portfolio Inflation-Resistant
Weeding Through the Energy Patch
Uncertainty and Value in Basic Materials
Stock Market Doom-Busters
Hunting Down European Debt-Dodgers
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks With Wide Moats
VA Sales Slip a Bit in First Quarter
New at Morningstar
Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Morningstar Advisor - August/September 2010
Morningstar Advisor - August/September 2010 - Cover2
Morningstar Advisor - August/September 2010 - 1
Morningstar Advisor - August/September 2010 - 2
Morningstar Advisor - August/September 2010 - Contents
Morningstar Advisor - August/September 2010 - 4
Morningstar Advisor - August/September 2010 - 5
Morningstar Advisor - August/September 2010 - New on MorningstarAdvisor.com
Morningstar Advisor - August/September 2010 - 7
Morningstar Advisor - August/September 2010 - Contributors
Morningstar Advisor - August/September 2010 - Letter From the Editor
Morningstar Advisor - August/September 2010 - What Aspects of Health-Care Reform Will Most Affect Your Clients?
Morningstar Advisor - August/September 2010 - 11
Morningstar Advisor - August/September 2010 - Bonds, Chicago Style
Morningstar Advisor - August/September 2010 - 13
Morningstar Advisor - August/September 2010 - Investment Briefs
Morningstar Advisor - August/September 2010 - 15
Morningstar Advisor - August/September 2010 - Which Risk Are You Managing?
Morningstar Advisor - August/September 2010 - 17
Morningstar Advisor - August/September 2010 - 18
Morningstar Advisor - August/September 2010 - Eye on the Prize
Morningstar Advisor - August/September 2010 - 20
Morningstar Advisor - August/September 2010 - 21
Morningstar Advisor - August/September 2010 - Advisors Can’t Rely on Fidelity Alone
Morningstar Advisor - August/September 2010 - 23
Morningstar Advisor - August/September 2010 - 24
Morningstar Advisor - August/September 2010 - 25
Morningstar Advisor - August/September 2010 - 26
Morningstar Advisor - August/September 2010 - Health Care Gets Back to Business
Morningstar Advisor - August/September 2010 - An Opportune Time to Bet the Pharm
Morningstar Advisor - August/September 2010 - 29
Morningstar Advisor - August/September 2010 - Reform’s Impact on Other Health-Care Industries
Morningstar Advisor - August/September 2010 - 31
Morningstar Advisor - August/September 2010 - 32
Morningstar Advisor - August/September 2010 - Top Takeover Targets in Biotech
Morningstar Advisor - August/September 2010 - 34
Morningstar Advisor - August/September 2010 - 35
Morningstar Advisor - August/September 2010 - After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Morningstar Advisor - August/September 2010 - 37
Morningstar Advisor - August/September 2010 - 38
Morningstar Advisor - August/September 2010 - 39
Morningstar Advisor - August/September 2010 - 40
Morningstar Advisor - August/September 2010 - Health-Care Investing Alive and Well
Morningstar Advisor - August/September 2010 - 42
Morningstar Advisor - August/September 2010 - 43
Morningstar Advisor - August/September 2010 - 44
Morningstar Advisor - August/September 2010 - 45
Morningstar Advisor - August/September 2010 - 46
Morningstar Advisor - August/September 2010 - 47
Morningstar Advisor - August/September 2010 - 48
Morningstar Advisor - August/September 2010 - Quest for Knowledge
Morningstar Advisor - August/September 2010 - 50
Morningstar Advisor - August/September 2010 - 51
Morningstar Advisor - August/September 2010 - Four Picks for the Present
Morningstar Advisor - August/September 2010 - 53
Morningstar Advisor - August/September 2010 - How to Make Your Bond Portfolio Inflation-Resistant
Morningstar Advisor - August/September 2010 - 55
Morningstar Advisor - August/September 2010 - 56
Morningstar Advisor - August/September 2010 - 57
Morningstar Advisor - August/September 2010 - Weeding Through the Energy Patch
Morningstar Advisor - August/September 2010 - 59
Morningstar Advisor - August/September 2010 - 60
Morningstar Advisor - August/September 2010 - Uncertainty and Value in Basic Materials
Morningstar Advisor - August/September 2010 - 62
Morningstar Advisor - August/September 2010 - 63
Morningstar Advisor - August/September 2010 - Stock Market Doom-Busters
Morningstar Advisor - August/September 2010 - 65
Morningstar Advisor - August/September 2010 - Hunting Down European Debt-Dodgers
Morningstar Advisor - August/September 2010 - 67
Morningstar Advisor - August/September 2010 - Mutual Fund Analyst Picks
Morningstar Advisor - August/September 2010 - 69
Morningstar Advisor - August/September 2010 - 70
Morningstar Advisor - August/September 2010 - 71
Morningstar Advisor - August/September 2010 - 50 Most Popular Equity ETFs
Morningstar Advisor - August/September 2010 - 73
Morningstar Advisor - August/September 2010 - Undervalued Stocks With Wide Moats
Morningstar Advisor - August/September 2010 - 75
Morningstar Advisor - August/September 2010 - VA Sales Slip a Bit in First Quarter
Morningstar Advisor - August/September 2010 - 77
Morningstar Advisor - August/September 2010 - 78
Morningstar Advisor - August/September 2010 - New at Morningstar
Morningstar Advisor - August/September 2010 - Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Cover3
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