Morningstar Advisor - February/March 2012 - (Page 21)

Exchange-Traded Fund: PowerShares S&P 500 Low Volatility SPLV Morningstar Category 1 Large Value Sector Allocation Consumer Cyclical Energy Health Care Tech Telecom Consumer Defensive Financials Industrials Materials Utilities Expense Ratio 0.25% AUM $985 million SEC Yield 3.1% % Portfolio Wide Moat 32% % Portfolio Narrow Moat 59% One of the more popular trends in new ETFs has been low-volatility funds, and PowerShares S&P 500 Low Volatility SPLV is our pick among the crop. Low-volatility stocks, like value stocks and small-cap stocks, have historically provided higher risk-adjusted returns over a long time horizon. This “low volatility premium” runs counter to Modern Portfolio Theory and instead is attributed to a market environment in which investors tend to tilt toward higher-risk stocks with the expectation of higher returns. Ironically, their collective bet on high-beta stocks leads to low risk-adjusted returns. Lower-volatility portfolios also benefit more from the effects of compounding, relative to a market-cap-weighted portfolio. However, investors should be aware that low-volatility strategies tend to underperform during strong bull markets. This ETF holds the 100 stocks of the S&P 500 that have had the lowest volatility over the past year. Not surprisingly, it has a heavy exposure to consumer defensive and utility names. Patricia Oey Hindsight: December/January 2011 Mutual fund Primecap Odyssey Stock POSKX, run by a team with a long, superb record, is slightly behind the Russell 1000 Growth Index (but well ahead of its typical large-growth peer) since its selection; the fund owns more small- and mid-cap firms than the index does, also has been a headwind in a year where behemoths held up better. Separate account Fiduciary Management of Milwaukee Large Cap Equity has virtually matched the S&P 500 Index; its emphasis on sturdy fare with stable revenues helped in the market’s dips, but it lost ground in rallies. Vanguard’s S&P 500 ETF has provided tight, low-cost tracking of the index as usual; its 7.6% gain wasn’t thrilling, but that would make most investors happy during this bumpy period. Finally, chipmaker Advanced Micro Devices AMD has dropped 30% as supply shortages slowed production and it struggled to keep up with Intel INTC. Greg Carlson Pick Type Cum Rtn to Date (%) Back Then, We Said ... Now, We Say ... Advanced Micro Devices AMD Vanguard S&P 500 Primecap Odyssey Stock Fiduciary Management of Milwaukee Large Cap Equity S&P 500 TR Russell 1000 Growth S ETF MF SA –30.32 7.60 6.58 6.53 “New chips should provide a significant boost” “Extremely low tracking error and economies of scale” “Team has generated outstanding long-term records” “Holds up better in rough patches” “Should defy an industry slowdown via market share gains” “A solid core equity holding” “An excellent performer with a contrarian-growth strategy” “Success in different environments inspires confidence” Index Index 7.67 7.18 The December/January 2011 issue was mailed to subscribers in January 2011. Return data is from Jan. 1, 2011, through Jan. 1, 2012. MorningstarAdvisor.com 21 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2012

Morningstar Advisor - February/March 2012
Contents
Contributors
Letter From the Editor
Make a Difference Stories, Not Debates
How Concerned Are You About Europe?
Analytical and Independent
What to Ask When a Fund Manager Leaves
Past, Present, Future
Have Financials Gotten Cheap Enough?
Four Picks for the Present
Investment Briefs
Tactical Funds Miss Their Chance
Specialty Retail: Ad Hoc Opportunity
How Europe Is Making Its Crisis Worse
Impact on U.S. Economy Will Be Minimal
European Banks: Bargains or Value Traps?
Don’t Count the Euro Out Yet
Europe on the Brink
GoodHaven Realizes Its Vision
How Index Trading Increases Market Vulnerability
Nonlisted REITS: Handle With Care
Safety Picks for the Many Moods of Mr. Market
On the Prowl for Large- Blend Index-Beaters
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Math That Matters

Morningstar Advisor - February/March 2012