Morningstar Advisor - December/January 2012 - (Page 68)

Screens Scouting for Investments Abroad By David Krempa Use this screen to find firms that add geographic diversification. Because the focus is on China this issue, we thought it would be worthwhile to search for safe investments that can increase investors’ foreign exposure. Understandably, U.S. investors’ portfolios are often overconcentrated in domestic companies. Investors are much more familiar with U.S. companies, so it makes sense that they would gravitate toward the stocks they know. Exposure to foreign companies, however, helps diversify portfolios and gives investors exposure to fast-growing economies. Foreign companies are rarely highlighted in the U.S. financial media, so unless investors are actively searching for foreign investments, they are unlikely to come across new ideas. Given the situation in Europe, many investors may be concerned about investing in foreign companies. Most large U.S. firms, however, already have significant European and international exposure, so investing in a foreign firm may not be as radical of a change as it seems. Also, Europe is a large part of the global ex-U.S. economy, but there are a number of other countries, including those in emerging markets, that have been producing strong growth and are in solid financial shape. We believe that investors with a long time horizon will do well by investing in attractively priced international firms that have competitive advantages, even if they are heavily dependent on Europe. firms that are based outside the United States. This screen will cut down our stock universe from more than 11,000 companies to around 2,200 stocks. And Uncertainty 5 Low Foreign 5 Yes Many investors are skittish about investing in foreign firms for a number of reasons. They’re less familiar with foreign economies, wary of foreign government regulations, and often wonder if the firm’s financial statements are reliable. These concerns have been especially heighted with the recent emergence of some fraudulent firms in China. For these reasons, we limited our screen to firms that our equity analysts have assigned a low uncertainty rating. Firms with low Morningstar Principia does not have the option to screen by individual country, but it does allow us to limit our stock screen exclusively to 68 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