Morningstar Magazine - February/March 2018 - 25

similar trepidation about strong-performing stocks
from other areas, such as luxury-goods makers
Kering KER:FR and LVMH MC:FR. A high-singledigit cash stake also held down returns. First Eagle
Overseas SGOVX landed near the bottom of the
foreign large-blend category for similar reasons.
At the other end of the spectrum stood T. Rowe
Price Emerging Markets Stock PRMSX. Tencent
was that fund's top holding all year, and Alibaba
was in the top five; those two companies made up
more than 12% of assets as of Sept. 30. The fund
had a minimal cash stake, and a number of big
winners outside the tech and Internet arena. One
was Sberbank of Russia SBRCY, which defied the
Russian market's otherwise sluggish year; another
was Asian insurance firm AIA. Both rose more than
40%. This fund gained 42.9% for the year, beating
roughly 90% of its diversified emerging-markets
category rivals and topping the MSCI Emerging
Markets Index by nearly 6 percentage points.
Owning the Chinese stars wasn't necessary to
stand out, though. Oakmark International OAKIX
had a good year without Alibaba, Tencent, or JD.
com JD, posting a 29.8% return that comfortably
beat the MSCI ACWI ex USA Index and nine tenths
of its foreign large-blend rivals. It did own Baidu
BIDU, which didn't gain as much as those three.
The fund held big gainers Kering and LVMH, and a
wide variety of others winners outside of the tech
sector, such as Diageo DEO and Glencore GLEN:GB.

TRE NDS

Outlook-The Long View
In January, Morningstar Investment Management
Europe published its global investment outlook.
Dan Kemp, chief investment officer, EMEA,
with Morningstar Investment Management, and
Tanguy De Lauzon, head of capital markets
and asset allocation, EMEA, shared the group's
views on asset classes and sectors. With
the caveat that short-term market predictions
are an investor's folly, Kemp and De Lauzon
outlined their long-term thinking, based
on valuation-driven views and incorporating

fundamental analysis. As the chart below
summarizes, the investment landscape is generally expensive according to their methodology.
(Their "Low" conviction on U.S. equities, for
example, incorporates the highs that U.S. stock
indexes hit in 2017.) For explanations of their
equity and fixed-income analysis, and a snapshot
of the in-depth fundamental research informing
their convictions, the full report is available
on Morningstar Direct.
Conviction Level
Low

2018 to 2028 Outlook

Equities

Medium

High

U.K. Equities
U.S. Equities

Japanese Equities
Europe ex-U.K. Equities
Emerging-Markets Equities
Bonds

U.K. Bonds
U.S. Bonds

Japanese Bonds
Europe ex-U.K. Bonds
Emerg-Mrkts Bnds (Local Currency)
Emerg-Mrkts Bnds ($ Denominated)
High-Yield Credit

Gregg Wolper is a senior analyst, manager research, with
Morningstar Research Services.

Property
and Infrastructure

Global REITs
Global Infrastructure

Sources: Morningstar, Investment Management Europe. Data as of 12/31/2017.

Changes to the Europe
Core Pick List
GREATER EUROP E

Netherlands
The Morningstar Europe Core Pick List features the
most attractively valued, European-domiciled
companies that possess sustainable competitive
advantages. January saw a modest and slightly
greater uptick in turnover relative to last month's.
Changes in fair value estimates and trading

fluctuations caused several firms to drop off the list
and others in our coverage universe to be added.

coverage trades at an average of 109% to our fair
value estimates.

Firms that left our list included HeidelbergCement
HEI:DE (basic materials), BT Group BT
(communication services), Liberty Global LBTYA
(communication services), Publicis Groupe PUB:FR
(consumer cyclical) and Shire SHPG
(healthcare). The FTSE 100 decreased by 4.93%
in December, while our overall European

Liberty Global's Class A shares rose nearly 7%
over the past month, with current prices closing in
on analyst Allan Nichols' fair value estimate.
The stock rose on news that it agreed to sell its
operations in Austria to Deutsche Telekom DTEGY,
which fits in with Nichols' broader thesis of
convergence in Europe. Other names that saw

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Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018