Morningstar Advisor - August/September 2011 - (Page 24)

Investment Briefs Cerulli Says: Advisors Use Fewer Asset Managers Despite the proliferation of new products and providers, advisors are paring down the number of asset managers they use. Since 2008, the percentage of advisors who use five or fewer asset managers has grown to 57% from 37%. 5 6–10 11–15 15 100% 80 60 40 20 25 14 13 16 12 23 13 10 20 57 16 22 32 tion and assets in the past few years, after the strategy’s chart-topping performance in 2008. Morningstar’s Global Trend Hedge Fund Index, which tracks managed-futures strategies in hedge fund wrappers, increased by approximately 10% in 2008, compared with the S&P 500 Index’s 37% loss. The strategy profited in 2008 and again in 2010 because of its focus on longer-term momentum investing, but it fell short in 2009 when the markets experienced some short-term swings. Nonetheless, a managed-futures fund’s ability to zig when other investments zag makes it a good long-term diversifier. (We take an in-depth look at managed futures in “How to Better Manage Your Clients’ Future(s),” Page 62.) Multialternative 49 37 41 2008 2009 2010 2011 Sources: Cerulli Associates, in partnerships with the College for Financial Planning, the Financial Planning Association, the Investment Management Consultants Association, and Morningstar. providing ample exposure to both smaller-cap names and emerging-markets stocks. The six managers have picked lots of good stocks here. This fund has thrived in a variety of market conditions since opening in late 1997, and it boasts impressive three-year, five-year, 10-year, and since-inception returns as a result. Vanguard Total Intl. Stock Index VGTSX This foreign large-blend offering tracks the MSCI All Country World ex USA Investable Market Index. That index is just as expansive as its name suggests. As of May 31, the fund owned more than 6,500 stocks, spread its assets relatively evenly across both the style and the sector spectrums, and had roughly 24% of its assets in emerging-markets stocks and nearly as much in smaller-cap issues. The fund has much more than its breadth going for it: Vanguard is rightly well respected for its skill at executing passive strategies, and this fund has an ultralow expense ratio. And thanks in large part to these attributes, this fund has an enviable long-term record. The multialternative category includes funds that offer investors exposure to several different alternative asset classes and investment tactics. The category houses 60 distinct multialternative funds, making it the second-largest alternative category after long-short equity, which now contains 73 funds. Overall, funds in the multialternative category are considerably older than those in managed futures; only one fifth of the multialternative category’s constituents were launched in the previous year, and the category’s oldest fund dates back to 2000. Long-Short Equity Morningstar Creates New Alternatives Categories To keep pace with the burgeoning registeredalternative landscape, Morningstar recently revised its alternatives categorization, dividing the overgrown long-short category into three new groups: managed futures, multialternative, and long-short equity. Morningstar analyst Mallory Horejs introduces the new categories: Managed Futures Managed-futures funds have gained recogni- Employing the oldest hedge fund strategy in the book, this category’s constituents take both long and short positions in equities and related derivatives with the intention of hedging against the downside. Some funds in this category shift their exposure between long and short positions depending on their macro outlook or opportunities they uncover through bottom-up research. Some may simply hedge long stock positions through exchange-traded funds or derivatives. Because long-short equity funds have longer track records, investors can more easily evaluate them. Risk-adjusted performance, as measured by the Morningstar Rating or Sharpe ratio, for example, is the best way to compare these funds. 24 Morningstar Advisor August/September 2011

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Contents
Contributors
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011