I attended the
in late June and here are my observations:
I arrived a day early to participate in the special session on how to use Morningstar's Principia Pro software and to learn about the company's plans to function as a resource for financial advisers. Morningstar's Paul Fox reflected on some of the firm's finds:
On average, fund returns decrease slightly as the number of holdings decreases. Fox said, "Concentrated managers better be great stock pickers."
Funds that heavily weight their top holdings tend to do better. That is probably because managers may be passionate about a few ideas, but just in case, they diversify by picking additional stocks.
High turnover in a fund is not always bad. It particularly pays off in the large-growth, medium-blend and medium-growth styles. There is an even stronger added value when it comes to the small-value and small-growth styles.
Rebalancing does reduce risk, but it also reduces the return. Fox said, "It raises the floor but also lowers the ceiling. Optimum rebalancing is not done by the calendar but when an asset gets out of whack by 7%. I believe it's more important to focus on the manager, the asset class and the style."
To cap off the special preconference session, Morningstar introduced a mega service for financial planners. They recently obtained the services of a "Joe Montana-Jerry Rice" combo, in the form of Bob Clark and Bob Veres. There are no two people who know the financial-advisory business better. They both have credentials a mile long.
They have undertaken a blockbuster Web site project at Morningstar, funded with $20 million. The Web site, called
, is designed to be the "one-stop Internet resource for the financial adviser." I dubbed this project the Financial Genome Project because they intend to identify every financial cell and to create a resource for it to help advisers solve clients' financial problems. The first phase will be online July 24.
After that meeting, I rushed off to a different hotel to catch a special preconference presentation by Mark Holowesko, the chief investment officer for
. He also manages the
Templeton Growth Funds
. He's known as a deep-value manager, and was mentored by the great
. Mark opened his presentation with a couple of quotes. First, from
: "Current market conditions are as extreme as anything that has happened, probably including the 1920s. There is no question that in the past year, the ability to monetize shareholders' ignorance has never been exceeded." Second, a particularly disturbing line quoted from Templeton: "This is the most dangerous period in financial history."
Now that he had everybody's attention, Mark shared some scary slides comparing today's U.S. market with Japan's of 10 years ago. When he moved the Nikkei 225 forward 10 years and overlapped a line representing its growth with the
Dow, the parallel was enough to screw up the healthiest EKG. It looked like the climb of the Dow to 11,000 was roughly similar to the Nikkei's climb to 40,000. Mark projected a bubble scenario that implied the Dow could drop to about 4000, just as the Nikkei dropped under 15,000. He gives it about a 35% probability.
At about this time, I started to break into a sweat and thought about running home and putting everything in cash. It helped when Mark said he increased his allocation from 20% to about 40% in value stocks in the U.S. Some of his beaten-down favorites included,
Bank of America
Goodyear Tire & Rubber
With all that as a backdrop, I could hardly wait for the Morningstar Conference to start so I could get a good growth fix from the likes of
Garrett Van Wagoner
The other items I found interesting were a few stock picks from managers. These are for a long-term hold -- as long as 10 years. Certainly, it is a refreshing viewpoint from the idea of flipping an
IPO. Arden Armstrong, managing director of Miller, Anderson & Sherrerd, says
is an example of a good long-term hold. Howard Ward, manager of Gabelli Growth said, "If I could only own one stock over the next 10 years, I would own
In any event, I didn't come home and "go to cash." I just re-examined my portfolios.
Have a great week!
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at