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Morningstar Investment Conference

Most of you know the name Morningstar, as it has over the years been a valuable tool here at Harbor for high quality information about mutual funds, ETFs, fund managers, investment strategy and the latest investment news. I recently attended their national conference, which differentiates itself in that it is not funded by any speakers or sponsors. The information is delivered at a high level and is very well researched.

The conference was held in Chicago, which also happens to be Morningstar’s home turf.

Key speakers were Bill Gross, founder of PIMCO, Bruce Berkowitz, founder and chief investment officer of Fairholme Capital, Don Phillips, President of Fund Research for Morningstar, Larry Fink, chairman and CEO of Blackrock, and Harvard University professor of Economics David Laibson. Breakout sessions were staffed by some of the brightest and most engaged people in the industry. The sessions were set up to encourage information exchange and healthy debate and covered topics from active versus passive management to new strategies for income in portfolios.

Some highlights:

Bill Gross argues that the U.S. government has decided to dig out of our economic hole by ‘picking the pockets’ of investors through inflation and low real interest rates. The current 5-year treasury has a real interest rate of -.05%. With nominal interest rates less than inflation, the U.S. debt to GDP ratio will shrink at the expense of savers.

Gross suggests looking outside the U.S. for investments, to those countries with a less repressive policy. Brazil, Canada and Mexico debt is recommended. For U.S. investments he suggests blue chip, dividend paying stocks.

Bruce Berkowitz believes that financials are in a similar state as seen during the savings and loan crisis in the late 1980s and early 1990s. He believes the situation to be a cyclical event. He believes the financial institutions to be solid, well valued and firmly entrenched in our economies. The fund’s investment in AIG was a foray into Asia. Emerging China is growing as is its middle class and life insurance is a way to ensure middle class security.

David Laibson is a Harvard college professor of economics. His presentation “The Age of Reason: Financial Decision Making Over the Life Cycle” was very interesting if a bit disturbing. He presented statistics on the effects of aging of the brain, specifically decision making. He ties in economic facts reflective of the financial industry, for example older people pay higher mortgage and credit card rates. He suggests creating products and services that allow the aging person to maintain control, at the same time remain safe financially. This is news we can all use as most of us know or have worked with an aging individual.

I then developed my list of most valuable takeaways:

• Look at longer timeframes for investing. Investor behavior is a big negative factor in performance, estimated at 1-2 percentage points per year

• Match short term needs to cash and secure portfolio holdings

• Communicate to staff and investors

• Take a leadership role

• Consider adding a planning module on aging well with your portfolio and plan

Here at Harbor we strive to attend one to two conferences every year to keep our knowledge fresh and encourage new ideas. This conference certainly encouraged critical thought and enabled me to interact with the best in the investing industry.