Morningstar Advisor - December 2010/January 2011 - (Page 12)

Investment Briefs Commodities and the Weak Dollar Thanks primarily to the weakening of the U.S. dollar, commodities are becoming increasingly attractive, Morningstar research and communications manager Jim Licato says. Moreover, the Federal Reserve has committed to buy $600 billion in government bonds in an effort to further stimulate the economy. “The depth and breadth of the global recession has required a highly accommodative monetary policy,” Fed chairman Ben Bernanke wrote in a Wall Street Journal opinion piece. “Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.” He added that these policies “will likely be warranted for an extended period.” What does all this mean for investors? Well, another round of easing by the government will pump more money into the U.S. financial markets, which in turn can lead to further weakening of the U.S. dollar. And commodities, particularly those priced in U.S. dollars, may reap the corresponding rewards. Silver, gold, and live cattle were the top year-todate performers through the end of September. Wheat, corn, and copper also performed quite well. Before rushing to invest in this particular segment of the market, however, investors might want to examine the bigger picture. The graph illustrates the range of annual returns for a number of the most commonly traded commodities. Natural gas experienced the greatest range of returns, while the live-cattle category has been the most stable. The returns of some commodities are more volatile than others; investors might want to consider this information before they invest. It is also important to examine the performance of commodities relative to other asset classes before adding them to a portfolio. The table displays the correlations for stocks, bonds, cash, REITs, inflation, and commodities since 1980. According to the data, commodities have negative correlation to bonds and cash and relatively low correlation to stocks and REITs. Because a well-diversified portfolio should consist of individual investments that behave differently, commodities may deserve a place in your clients’ portfolios. Morningstar Names Best 529 Plans Laura Pavlenko Lutton, an editorial director in Morningstar’s fund research group, recently introduced Morningstar’s seventh annual study of 529 college-savings plans, based on months of research into more than 50 of the largest 529 college-savings plans. Morningstar’s mutual fund analysts studied detailed comparisons of the plans’ asset allocations, underlying investments, returns, fees, stewardship practices, and tax incentives. The team also discussed investment strategies with the plans’ program managers and talked with the states’ representatives to determine how they oversee, market, and administer their 529 plans. From this work, Morningstar developed a new analyst rating for 529 plans. The 529 plans that received top ratings are: T. Rowe Price College Savings Plan Maryland College Investment Plan Range of Annual Returns of Commodities, 1991–2009 400 300 200 100 0 –100 Natural Gas Copper Crude Oil Wheat Soybeans Silver Corn Gold Live Cattle Highest Return % Lowest Return % Correlations of Asset Classes Large stocks Small stocks Bonds Cash REITs Commodities Inflation 400 300 200 100 0 Large stocks Small stocks Bonds Cash REITs Commodities Inflation 1.00 0.75 0.16 0.03 0.54 0.15 –0.04 1.00 0.03 –0.03 0.60 0.16 –0.03 1.00 0.08 0.08 –0.07 –0.22 1.00 –0.03 –0.10 0.39 1.00 0.17 0.00 1.00 0.13 1.00 Source: Commodities represented by Morningstar indexes; large stocks by the Standard & Poor’s 500; small stocks by the fifth capitalization quintile of stocks on the NYSE for 1980–1981 and the performance of the DFA U.S. Micro Cap Portfolio thereafter; REITs by the FTSE NAREIT. T. Rowe Price runs both these plans, and they are two of the few direct-sold 529 plans that emphasize actively managed funds. Thus, college savers pay more than they would for an indexed-only plan, but they’re getting a strong set of funds run by experienced managers. -100 Na 12 Morningstar Advisor December/January 2011

Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011

Morningstar Advisor - December 2010/january 2011
New on
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Investment Briefs
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
All Aboard!
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?

Morningstar Advisor - December 2010/January 2011