Morningstar Advisor - February/March 2011 - (Page 6)
Executive Editor Jerry Kerns Managing Editor Ryun Patterson Editor-at-Large Don Phillips Contributing Editors Dan Culloton, Paul Justice, Haywood Kelly Contributors Karin Anderson, Sanjay Arya, Michael Breen, Jon Hale, Bill Harding, Bridget B. Hughes, Russel Kinnel, David Krempa, Samuel Lee, Jim Licato, William Mast, Marta Norton, Michael Rawson, John Rekenthaler, Carl Richards, Kate Stalter Data Editors Preethi Parmar, Alina Tarlea Proofreader Jennifer Gierat Art Director Teofila Arellano Associate Art Director Alexander Skoirchet Production Designer Summer Bornman Illustrator James Yang Photographer K.C. Alfred, Jamie Conlan, Jeff Chen Publisher Jill Jacobs-Baar Marketing Director Leslie Banks Circulation Manager Dawn Rescigno Media Services Engineer Brian Schuneman Director of Advertising Sales Mary Uribe Regional Sales Directors Dan Atkinson, Tony Lignelli, Kristina Niemi, Stuart Roge
In “Selling Beta as Alpha” (Page 49), Samuel Lee poses the question: Why pay for active management if all you’re getting is a fund that hugs its index? The ETF analyst uses active share—a measure of a fund’s active bets that was invented by two Yale professors—to uncover the biggest closet indexers. His suggestions for alternative choices are funds with high active share. “Active share seems to predict a manager’s future outperformance,” he says. “Its predictive power adds weight to what practitioners have been saying for a long time: Good managers tend to take concentrated positions on their best ideas; mediocre ones diversify away their ignorance.”
Although a fundamental analyst by training, ETF analyst Michael Rawson enjoys studying and using quantitative methods to invest. Before joining Morningstar, Rawson spent five years as a buy-side analyst for a quantitatively run mutual fund, where he first learned about exchange-traded funds. “An investment process based on stock-market data easily lends itself to the analysis of ETFs,” he says. Rawson applies his knowledge of quantitative investing in “In Between Active and Passive” (Page 46), an article about enhanced-index funds.
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We didn’t have to get James Yang up to speed on the active- and passive-investing debate. He is the first illustrator we’ve come across who has a deep knowledge of investing. “Investing is one of my passions, so it was fun to work on this project,” he says. Since graduating from Virginia Commonwealth University in 1983, Yang has won more than 200 awards for excellence in illustration. His work has appeared in some of the most prestigious trade publications in the United States, including Communication Arts Design Annual, Communications Arts Illustration Annual, Print Magazine, 3X3 Magazine, Graphis, and the Society of Publication Designers Annual.
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Morningstar Advisor is published bimonthly by Morningstar, Inc., 22 W. Washington St., Chicago, IL 60602. An annual subscription for delivery in the U.S. is $60. All exhibit data in this magazine is provided by Morningstar and Ibbotson Associates unless otherwise noted. © 2010 Morningstar. All Rights Reserved. The information contained herein: (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or its content providers; (3) may not be copied or distributed; (4) is not warranted to be accurate, complete, or timely; and (5) does not constitute investment advice of any kind. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. “Morningstar” and the Morningstar logo are registered marks of Morningstar, Inc. Disclosure: Morningstar licenses its indexes to certain providers, including Blackrock Institutional Trust Company, N.A., First Trust, and Deutsche Bank, for use in exchange-traded funds and exchange-traded notes. These ETFs and ETNs are not sponsored, endorsed, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs and ETNs that are based on Morningstar indexes.
Morningstar Advisor February/March 2011
Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2011
Morningstar Advisor - February/March 2011
Letter From the Editor
First, Do No Harm
Do You Use Active or Passive Investment Strategies?
Best of Both Worlds
How to Build an Index
Nice Guys Finish First
Four Picks for the Present
A New Guardrail Against Risk
Tech Loosens the Purse Strings (a Bit)
It’s More About Costs Than Active or Passive
Play Your Stars
In Between Active and Passive
Selling Beta as Alpha
The Weighting Game, and Other Puzzles of Indexing
Leaving the Nest
Redefining Credit Risk
Another Vote for Market-Based Credit-Risk Measures
Big Opportunities in Small-Cap Stocks
Benchmarks? What Benchmarks?
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
VA Sales Slide, but Assets on the Rise
Indexing’s Lunatic Fringe
Morningstar Advisor - February/March 2011