Morningstar Advisor - October/November 2012 - (Page 10)

On Topic Do You Use Factor-Investing Strategies? Let us know your thoughts at “We always believe in managing risk, and you always have to do what is best for the client. You have to consider all these factors. Size does not concern me as much as value. I have never been big on momentum investing, but you have to consider where the money is going. “I do and have used the tools provided by DFA, which use factors that historically have added to return and seem to persist. I believe that Quick Poll (given Sept. 11, 391 responses) 1 Do you believe that an active manager can consistently outperform the market? Yes No 52.8% 47.2% But too much of a ‘herd mentality’ can be a bad thing. Investors tend just expecting economic growth to provide returns is not prudent in a secular bear market.” Donald M. Roy, CFP New England Wealth Managers Merrimack, NH to follow fads. I much prefer Warren Buffett’s approach: ‘The best time to buy straw hats is in the winter!’ When too many people are buying, I get worried. Buy when others are selling and sell when others are buying.” Lee Pence, CFP Pence Financial Advisor Inc. Woodstock, GA 2 Do you believe any active manager outperformance can be replicated by a quantitative strategy? Yes No 27.4% 72.6% “Yes, I do because this helps with diversification, which is very important to reducing volatility, leads to successful investing for my clients, and historically has proven to improve performance over the long term.” Art Pedgrift Choices Brokerage Homewood, IL “Everything goes in cycles. Right now, after years of being out of favor, dividend-paying investments are once again in vogue and eventually they will become overvalued. As such, I would be looking more at growth investments again real soon since they are currently out of favor. I won’t buy any stocks because of their momentum. I do look at a company’s size, and I always look at value. Stocks that might be currently out of favor are where you have the greatest potential for gain. Buy low, sell high, after all.” David J. Lutz Jr., CFP Celtic Financial Services LLC McMurray, PA 3 Do you use investing strategies that seek to capitalize on risk factors, such as size, value, momentum, liquidity? Yes No 68.5% 31.5% 4 Has the investing environment since the financial crisis caused you to consider using more risk-factor strategies? Yes No 61.6% 38.4% 5 Which risk factor do you believe adds the most value to an asset? Market 21.0% 46.8% 4.3% 16.1% 11.8% Value Size Momentum Liquidity “Our investment strategy calls for weight- ings based on size and value according to relative valuations; i.e., which is cheaper, large cap or small cap? Which is cheaper, growth or value? We will always maintain exposure to both, but we will allocate within parameters based on relative valuations. We do not view momentum as a reliable long-term indicator of future performance.” David Duncan, CFP Duncan Financial Group Irwin, PA “It behooves us as advisors to take into account all risk strategies when setting up our clients’ portfolios. Using a mix of tactical, strategic, and preservation strategies can work well in any goal-planning approach. Given that, hiring different managers with different risk disciplines does help to properly diversify the portfolios, not only to companies and sector weighting, but also to style. Philip F. Bombace New England Securities Foster City, CA 10 Morningstar Advisor October/November 2012

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2012

Morningstar Advisor - October/November 2012
Letter From the Editor
Ill Communication
Do You Use Factor-Investing Strategies?
Practicing What She Preaches
How to Determine the True Price of ETFs
The Quant Factor
Managers Dispute the Death of Equities
Investments á la Carte
Investment Briefs
Five Inconvenient Truths of Manager Research
Health Care’s Outlook Clarifies
Exploring the World of Factors
Uncloaking the Alpha Machine
Factor Strategies Gain Footholds in Practices
Big Mo
Fitting Factors Into the Formula
Clients Have a Friend in Luther King
Less-Liquid Holdings Mean More-Solid Results
Retirement-Withdrawal Strategies Quantified
Amid Turmoil, Don’t Discount Foreign Equities
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Should I Stay or Should I Go?

Morningstar Advisor - October/November 2012