Morningstar Advisor - June/July 2011 - (Page 25)

Investment Briefs TIPS to Hedge Against the Specter of Inflation While rising prices may not be a big concern right now, inflation still remains a serious risk for long-term investors. Inflation averaged about 3% annually from 1926 to 2010. This may not seem like much to clients, but it significantly erodes their purchasing power over long time horizons. A popular way to counter rising inflation rates is to invest in Treasury InflationProtected Securities. But have TIPS done their job—which is to give investors a return above the rate of inflation? They have over the past decade, according to Morningstar research and communications manager Preethi Parmar. The image below illustrates that TIPS have offered annual returns above inflation in seven out of the past 10 years. In fact, TIPS have been the best performer relative to bonds and Treasury bills in six out of the 10 years depicted. Although there is no guarantee that TIPS will continue to offer a return above inflation, these investments have demonstrated an ability to do so. TIPS almost always offer lower yields, a price investors pay for inflation protection. Investing in TIPS may or may not be worth the penalty depending on the investor’s objective. If protecting principal is important and you believe inflation is rising, then a mix of TIPS and conventional bonds could be a good strategy to explore. Janus Contrarian JSVAX Half of Janus Contrarian’s 38% foreign stake comes from emerging markets, and almost all of that emerging-markets position—16% of assets—lies in India. Despite the Indian market’s travails in 2011, it’s unlikely that manager David Decker will flee the country: He has owned a hefty stake in India for many years. It’s not a market call. He simply finds many firms that fit his eclectic standards there. Wasatch Ultra Growth WAMCX Wasatch announced it is coming out with Wasatch Emerging India, a small-cap growth fund, and that one of its two managers is Ajay Krishnan. Krishnan says he likes the breadth of India’s market, saying it isn’t driven mainly by resources as are some emerging markets. Virtus Foreign Opportunities JVIAX Among pure-foreign funds that can invest wherever they want, very few are more committed to India than Rajiv Jain of Virtus Foreign Opportunities. The fund’s near-17% stake in India at year-end was roughly 6 times the average for foreign small/mid-growth funds. For reasons of overall portfolio risk control, he wants companies in the fund whose fortunes won’t all be dependent on similar macro factors. Therefore, he looks for what he calls “uncorrelated earnings stories.” In his view, India offers an unusual amount of such firms. India Shines Brightly for These Managers Investors in India’s stock market have not been in a festive mood this year. In contrast to most emerging markets, the MSCI India Index has fallen 4.3% through April 22. Of the 21 emerging markets tracked by MSCI, only Peru and Egypt have fared worse. Many fund managers, though, remain attracted to India, including the managers of the following three funds, Morningstar fund analyst Gregg Wolper says. These examples show that not all investors are as worried about Indian companies as that market’s decline might imply. TIPS Tops: TIPS have offered annual returns above inflation in seven out of the past 10 years. 20% Return Treasury Bills Bonds TIPS Inflation 15 Target-Date Funds Win Assets, Criticism Abates Target-date funds are an increasingly popular choice for Americans’ retirement savings, especially as the funds’ performance has rebounded in the bull market. Morningstar’s 2011 Target-Date Series Research Paper (, an annual look at broad trends across target-date funds, found that target-date funds saw healthy inflows in 2010 relative to other mutual fund categories. Target-date funds had net 10 5 0 01 02 03 04 05 06 07 08 09 10 25

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011