Morningstar Advisor - August/September 2009 - 21

Peter L. Bernstein Remembered Paul D. Kaplan, Morningstar’s vice president of quantitative research and a frequent contributor to the magazine, wrote the following on the company’s intranet site after the death June 5 of Peter L. Bernstein: This week, while we were commemorating our 25 years of contributions to the investment industry, we received some sad news that dampened our celebrations. A great historian, commentator, writer, and editor in the investment field, and a friend of our firm, Peter L. Bernstein, passed away at age 90. Peter published many books that popularized many of the investment theories that we use everyday in our work, such as Modern Portfolio Theory, efficient market theory, risk modeling, and alpha-beta separations. But Peter went beyond explaining ideas. In a unique way, he told the rich stories of how these ideas came about and the people that thought of them. In my view, three of Peter’s books are must reads for us at Morningstar. r Capital Ideas: The Improbable Origins of Modern Wall Street (1991) r Against the Gods: The Remarkable Story of Risk (1996) r Capital Ideas Evolving (2007) For many years, Peter edited the journal that he founded, the Journal of Portfolio Management. It is one of the most prestigious journals among institutional investment professionals. Over the years, important research papers by people at Ibbotson appeared in its pages, including papers by Roger Ibbotson, Peng Chen, Tom Idzorek, and myself. large-cap offerings have encountered a very favorable climate in recent months, and Morningstar senior fund analyst William Samuel Rocco points out that a handful of funds that have taken advantage of the surge. After all the ups and downs, the average largevalue fund has returned 2% for the year to date through June 26. But David Williams guided Columbia Value & Restructuring UMBIX to a 14% return. Williams is an extremely patient investor who readily buys stocks in bunches and considers overseas opportunities as he looks for firms that can improve their profitability via reorganizations, management changes, or acquisitions. Meanwhile, David Kiefer and Avi Berg have produced a 14% gain at Jennison Value PBEAX. Kiefer and Berg are contrarians, and their late-2008 decision to add their stakes in then-beleaguered Goldman Sachs GS and Morgan Stanley MS has been a boon, because both names have returned more than 75% this year. The typical large-blend offering has gyrated to a 5% gain this year. Mason Hawkins and Staley Cates have led Longleaf Partners LLPFX to a 23% return, though, by sticking to the names in their concentrated portfolio through tough times when they believe the trouble is temporary. Bill Fries, Connor Browne, and Ed Maran of Thornburg Value TVAFX have executed their distinctive strategy deftly in the first half of 2009. The fund is up 19% for the year to date through June 26. Joe Milano has earned a 23% return at T. Rowe Price New America Growth PRWAX. Milano has accomplished this feat through strong stock selection and by being willing to differ from the crowd. In a recent regulatory ruling, FINRA warns of the risks of these funds and reminds financial advisors of their fiduciary responsibilities regarding the marketing, suitability, and understanding of these products. The ruling also calls on advisor firms to have adequate supervisory procedures in place to ensure that these obligations are met. For the providers of these products, FINRA reminds that all marketing material must include the disclosure about the daily return period and daily rebalancing in addition to warnings about what return patterns will look like over the long term. “This is a huge step forward toward protecting individual investors from having exposure to these products unwittingly inserted into their portfolios,” says Scott Burns, Morningstar’s director of ETF analysis. “We hope that platform advisory firms and registered independent advisors alike will get the message. It will also give us at Morningstar a regulatory leg to stand on when dealing with questions from individuals and advisors alike regarding the use of these funds.” Sale to BlackRock Should Benefit iShares The sale of Barclays Global Investors to moneymanager BlackRock has generated a lot of questions from investors about what the sale means for the future of the iShares group, ETF investors, and the ETF industry as a whole. To find some answers, we went to Scott Burns, Morningstar’s director of ETF research. How will this affect any iShares ETFs that investors own? The sale will have no effect on the ETFs currently supported by iShares. IShares creates, markets, and administers the funds upon their release, but it is not the market maker or clearinghouse for these ETFs. That happens on the exchanges. It should be noted that the iPath group that provides exchange-traded notes is not included in the transaction and that those funds will continue to be serviced and sponsored by Barclays Capital. FINRA Takes On Leveraged ETFs It appears that as Morningstar’s ETF team was calling for increased oversight on leveraged and inverse funds (see “How Leveraged ETFs Compound the Misery” in the April/May issue), FINRA was posting a response of its own. These Prominent Funds Have Got the Hang of 2009 Managers of core domestic-equity funds have faced an exceptionally turbulent environment in the first half of 2009. But the skippers of MorningstarAdvisor.com 21

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Morningstar Advisor - August/September 2009

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