Morningstar Magazine - February/March 2014 - (Page 6)

Contributors Lee Davidson, Warren Miller, and Magdalena Mroczek When we started exploring story ideas for this issue's theme, "Where to be active," our first thought was to tap Morningstar's new quantitative research team, which was formed in 2013 and is headed by Warren Miller, who was integral in the creation of Morningstar's quantitative equity and credit ratings. His team is tasked with deriving analytically rigorous tools and methodologies for investors. Readers can get a sense for that work in "Where It Pays to be an Active Fund-Picker" (Page 36). In this article, team member Lee Davidson, a former exchange-traded- fund analyst, switches gears from his passive roots and looks at when it makes sense to use active management by weighing the low fees of an index offering against the potential for a manager to outperform. Davidson's effort is complemented by "The Valuation Angle of Active Investing" (Page 39). Author Magdalena Mroczek, who was previously the senior editor of several Ibbotson Associates data yearbooks, uses valuation dispersions within equities categories and regions as a gauge for when it is appropriate to use active or passive management strategies. "The price/ fair value ratio can be used as more than just a valuation measure. By looking at the valuation dispersions of various equity categories, we can pinpoint the greatest active investment opportunities," she says. This kind of research says a lot about how far investment analysis has come. Miller puts that point into context in "Preparing for the Next 50 Years" (Page 8), the first installment of a regular "Letter From" column by a member of the magazine's advisory board. Miller looks at innovations of the past 50 years and takes a shot at predicting which trends could shape the investing world over the next five decades. Editor-in-Chief Jerry Kerns Associate Editor Rob Wherry Editorial Board David Blanchett, Joel Bloomer, Heather Brilliant, Scott Burns, Paul D. Kaplan, Kunal Kapoor, Haywood Kelly, Grant Kennaway, Thomas Idzorek, Dan Lefkovitz, Warren Miller, Daniel Needham, Don Phillips, Jeffrey Ptak, Hal Ratner, Christopher Traulsen Contributors Basili Alukos, Karen Andersen, Rachel Barkley, Valerio Baselli, Lee Davidson, Christopher Davis, Kevin Dwyer, Stephen Ellis, Robert Goldsborough, Michael Herbst, Robert Johnson, Jocelyn Jovene, Russel Kinnel, Magdalena Mroczek, John Rekenthaler, Michael Rawson, Carl Richards, Chiho Shimada, James Sinegal, Kate Stalter, Christine St. Anne, Iris Tan, Emma Wall, Peter Warnes, Adam Zoll Art Director Alexander Skoirchet Production Designers Regina Comito, Michael Pettit Illustrator Lloyd Miller Photographer Shawn Henry Publisher Leslie Marshall Director of Advertising Sales Mary Uribe Regional Sales Directors Dan Atkinson, Tony Lignelli, Stuart Roge Morningstar, Inc. Chairman and CEO Joe Mansueto Managing Director, Design David Williams Director, Corporate Marketing Kristin Mateja How to Reach Morningstar Magazine Subscriber Services and Circulation magazine_custserv@morningstar.com Editorial and Letters to the Editor magazine_editor@morningstar.com Advertising magazine_adrates@morningstar.com Rate card available at http://global.morningstar.com/MorningstarMagazine Reprints and Licensing magazine_licensing@morningstar.com How to Reach Morningstar Customer Service +1 312 384-4000 Advisor Product Sales +1 877 586-5405 Lloyd Miller 6 Morningstar February/March 2014 It would have been easy for graphic designer Lloyd Miller to get bogged down in some of the complex investing themes featured in this issue. Instead, Miller took a simpler approach to generating the illustrations. "In thinking about the images for this issue, I found myself adapting everyday objects and forms as my starting point to bring the articles to life," he says. "This approach is beneficial because it renders complex topics understandable and often injects a note of humor." Miller, who is based in New York, has had his work published in The New York Times, The Wall Street Journal, The Washington Post, Esquire and Fortune, among other publications. Data Questions +1 312 696-6600 Morningstar magazine 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. © 2014 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. 1684808 http://global.morningstar.com/MorningstarMagazine

Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2014

Morningstar Magazine - February/March 2014
Contents
Contributors
Letter From the Editor
Preparing for the Next 50 Years
Morningstar Managers of the Year
Fixing the Trust Deficit
Rethinking the Path to Retirement
Trends
Same Old, Same Old
Global Briefs
The Economic Implications of an Older World
Banking on Performance
Is the Affordable Care Act Healing Health Care’s Woes?70
Baxter Has a Positive Prognosis
Leading Fidelity’s Charge for RIAs
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Moving the Goal Post

Morningstar Magazine - February/March 2014