Morningstar Advisor - December/January 2012 - (Page 10)

On Topic Is China Exposure Important for a Portfolio? Let us know your thoughts at magazine_editor@morningstar.com “China exposure is very important for a portfolio, and it appears in all but the most conservative of the portfolios I manage for clients. While the world economy has slumped of late and China has not been immune to the world buying less of their stuff, they will remain an economic powerhouse for the decades ahead. “Yes, because it is a significant economy in the world and warrants attention. That said, I do it through active foreign managers who have assessed the risk/return ratio, as Quick Poll (Given Oct. 23, 325 responses) 1 Are you bullish or bearish on China’s economy? Bullish Bearish 70.7% 29.3% China is not simply a country to ‘throw a dart in.’ I look for seasoned pros to make those calls instead.” Clients with a long-term view on investing should have a stake in the future growth of China. The way I secure that is through ETFs holding larger companies, namely SPDR S&P China GXC, iShares FTSE China FCHI, and iShares FTSE China 25 Index FXI. Picking individual Chinese stocks is far too risky, as their country as a whole has not built robust enough corporate financial standards. I would further limit an investment in China to no more than 5% of the portfolio as part of a greater position in emerging markets as a whole.” Ron Gambassi Gem State Investment Advisors Boise, ID Jim Webster Webster Wealth Management, D.A. Davidson & Co. Bozeman, MT 2 Do you prefer to get exposure to China directly through Chinese companies, or indirectly, through Western companies that do business in China? Directly 29.8% 64.6% 5.6% Indirectly Prefer no exposure to China “We leave decisions about international diversification to active managers. Strategic allocation that is country-specific does not make very much sense to us, even if fund (including ETFs) expenses can be lowered. We will do our research at the fund/fund manager level and allow the fund managers to make investment decisions (including country-specific decisions).” Robert G. Roscoe RoscoeWolach, Inc. Greeley, CO 3 How much exposure should your clients have to emerging markets? 0–5% 6–10% 11–15% .15% 19.7% 47.4% 24.9% 8.0% 4 Is China’s currency stance getting the attention it deserves from U.S. policymakers? Yes No 49.4% 50.6% “I am not convinced that China exposure is vitally necessary; however, we do utilize diversified international and emerging market mutual funds that have some China exposure. We probably also have some exposure in our domestic-stock funds that hold stocks of multinational companies.” Richard K. Howard Honkamp Krueger Financial Services, Inc. Dubuque, IA “Yes—very important. We use American Funds for most of our equity investments because of the history of that company in the emerging markets and its conservative approach to managing money. In particular, we really like the New World Fund and are very pleased that American Funds launched the Global Balanced Fund to give our most conservative investors an opportunity to participate in the growth of the emerging markets.” Mary B. Meyers Threshold, Inc. Vancouver, WA 5 What’s the biggest threat to China’s economy? Inflation Real estate bubble Overheated construction sector Bank-loan losses Other 28.9% 24.5% 14.9% 17.4% 14.3% 10 Morningstar Advisor December/January 2012

Table of Contents for the Digital Edition of Morningstar Advisor - December/January 2012

Morningstar Advisor - December/January 2012
Contents
Contributors
Letter From the Editor
Seduced by Complexity
Is China Exposure Important for a Portfolio?
A Niche Built on Trust
How to Find Your Client’s Investment Style
Taking the Long View
Consensus on Europe Elusive
Four Picks for the Present
Investment Briefs
Is Perception Reality for Active Managers?
Be Alert for Basic-Materials Bargains
Investment Boom Unsustainable
Digging Moats in China
Where China’s Domestic Companies Stand to Benefit
Arising Opportunities
China Strong Long Term
From Currency Manipulation to International Acceptance
The Keys to China’s Fortune
Wedgewood’s Lessons Pay Off
Reading the Evidence on Indexing
Scouting for Investments Abroad
Yield, Please (Hold the Europe)
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
China Fund Managers Eat Elsewhere

Morningstar Advisor - December/January 2012