Morningstar Advisor - February/March 2013 - (Page 10)

On Topic Do You Use Active Strategies? Let us know your thoughts at magazine_editor@morningstar.com “We do use active managers. We spend a lot of time looking for managers who have stayed focused on a particular asset class for 10 years or more and who have performed above average on a risk-adjusted basis. We select managers who have a long-term focus, and, therefore, we typically do not use managers who trade frequently. “Yes, to provide return streams not tied to an index. I like managers with a lot of flexibility to go where they see opportunity.“ Donald Roy, CFP New England Wealth Advisors Merrimack, NH Quick Poll (given Dec. 27, 466 responses) 1 What percentage of your clients’ investments are in active strategies? 0 9.3% Barry Beach Mason Investment Advisory Services, Inc. Reston, VA “I don’t use active strategies. I’ve long believed in market efficiency and that today’s price should reflect all that is known. Adequate diversification is more important to me. I would loosely employ active strategies when it comes to a client investing cash or withdrawing, but not shifting assets. I’m not certain that you can use active strategies without discretionary authority. I don’t like discretionary authority, as I want my clients to understand and be partners. I wouldn’t want them as clients otherwise.“ Chris Weber, CFP Cetera Investment Services Northfield, MN 10 Morningstar Advisor February/March 2013 “While we use fundamentally-weighted ETFs for the more efficient asset classes, we use actively managed mutual funds in the less-efficient areas; we believe some managers have consistently outperformed in those markets. Our asset allocation, however, is fairly passive. We generally split our equity allocations, for example, evenly across eight classes and rebalance annually if our trend-following system has not been triggered. We believe over time this will potentially enable us to have better returns with reduced downside risk.“ Reginald Armstrong Armstrong Wealth Management Group Florence, SC Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. “Yes! We think we can identify active managers who consistently beat their benchmarks. Dan Fuss, Bill Gross, and Jeffrey Gundlach are obvious examples in bonds. Robert Gardiner and Blake Walker of Grandeur Peak and Oakmark’s David Herro are international and global examples. At Fidelity, there are Chuck Myers and Will Danoff. Enough said!“ 22.1% . 50% 43.5% 100% Studies are often cited about how passive strategies outperform active strategies on average over time for the average investor. But the average investor does not have the time, the focus, nor the temperament to be successful at identifying and sticking with active managers over complete market cycles. We think that firms who focus on managers 24/7—and who apply a selection and evaluation philosophy and discipline over many years—can add value.“ < 50% 25.1% 2 Over the past five years, have you increased, decreased, or kept the same your use of active-investing strategies? Increased 24.7% Decreased 24.1% Kept the same 51.2% 3 Say you could only pick one fund for a client. Would it be an active fund or passive fund? Active 67.0% Passive 33.0% 4 What are the advantages to using active fund managers (check all that apply)? Flexibility to go where the opportunities are. 69.6% Exposures to areas of market where indexing is less efficient. 63.0% Allows me to add value for the client. 59.0% Best chance to beat the market. 40.7% Best fit to meet my clients’ goals. 37.8% 5 What are the disadvantages to using active fund managers (check all that apply)? 60.4% Too hard to identify who the “winner” managers will be. 58.3% Manager turnover might affect a fund’s performance. 52.2% Tax inefficient. 50.3% Likely to underperform indexes. Larry Hungerford Bermuda Run, NC Fees too high. 37.1%

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2013

Morningstar Advisor - February/March 2013
Contents
Contributors
Letter From the Editor
Social Media, the Old- Fashioned Way
Do You Use Active Strategies?
Youth Appeal
How to Buy the Unloved 2013
Morningstar Managers of the Year
Investments á la Carte
Investment Briefs
Approaches to Absolute-Return Investing
In Agriculture, It’s Good to Be Strong
Yes, There Are Good Active Funds
The Decoupling
Where It Could Pay to Be Active
The Active Fund That Defies Obsolescence
The Epitome of an Active Manager
Lines of Communication
The Existence of Market Timing ‘Intelligence’
A Route to Commodities that Bypasses the Futures Market
Best Positioned for Health-Care Reform
Diversified Stock Funds That Earn Their Stars
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
A Twisted Debate

Morningstar Advisor - February/March 2013