About the Editor
Samuel Lee is an ETF strategist for Morningstar and editor of Morningstar ETFInvestor, a monthly investment newsletter. Prior to becoming editor, Lee was a fund analyst on Morningstar's passive funds research team, where he covered alternative, dividend, and actively managed ETFs and performed quantitative modeling of ETF strategies.

Lee joined Morningstar in 2008 as a data analyst, where he evaluated ways to measure and improve the firm's data quality.

Lee holds a bachelor's degree in economics, with honors, from Grinnell College.


Investment Strategy
Morningstar ETFInvestor scans the globe for value and improving fundamentals across virtually all asset classes. Editor Samuel Lee draws upon academic and practitioner research — including Morningstar's sizeable bench of stock, bond and fund analysts — to find reliable drivers of outperformance.

Morningstar ETFInvestor features two real-money portfolios.

The ETF Income Portfolio assembles a high-quality collection of income-generating ETFs with the goal of earning 5% in excess of the 30-day T-bill rate over a full business cycle. The portfolio adheres to a benchmark-agnostic strategy in its search for absolute returns.

The ETF Global Asset Allocation Portfolio, on the other hand, is more benchmark sensitive. It seeks undervalued asset classes with improving fundamentals. The strategy seeks to beat the 60/40 MSCI ACWI/Barclays US Aggregate benchmark over a full business cycle, with the least risk possible.

 
 
Sep 30, 2014
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Samuel Lee,
Editor, Morningstar ETFInvestor
Samuel Lee is an ETF strategist for Morningstar and editor of Morningstar ETFInvestor, a monthly investment newsletter. Prior to becoming editor, Lee was a fund analyst on Morningstar's
Featured Posts
Gross Overreaction
This Friday update was going to be about the SEC probe into PIMCO Total Return's BOND pricing. But, as you almost certainly know by now, Bill Gross has announced his departure from the firm effective immediately to join Janus Capital Group JNS. According to the Wall Street Journal, several big-shot PIMCO portfolio managers threatened to quit if Gross wasn't fired, and PIMCO was making plans to do so. Rather than wait for the axe to fall, it seems Gross opted for the proverbial "You can't fire me, I quit!"

What does this mean for our PIMCO holdings, particularly PIMCO Dynamic Income PDI and PIMCO Dynamic Credit Income PCI? They've sold off about 2% as of this writing and trade at estimated discounts of almost 7% and 12%, respectively. (An analysis of BOND will be up early next week.)

Frankly, I'm excited. I think this is a good buying opportunity. However, given the retail nature of PIMCO closed-end fund ownership, there may be more reactive selling ahead as the news spreads. Another potential source of price pressure is Gross dumping his substantial holdings in all PIMCO CEFs in a fit of pique—in which case the rational thing to do is buy even more!

As Morningstar's head of manager research in North America, Michael Herbst, says, "[PIMCO] is not a one-man show. The intellectual firepower at PIMCO did not just leave the building…"

What are the true risks of Gross leaving? A big blow would be if Dan Ivascyn left. Then I'd consider selling when discounts normalize. But if the source quoted in the WSJ article is to be believed, it seems Gross' leaving was a necessary condition for the stars to stick around. According to Bloomberg, Ivascyn will likely succeed Gross as chief investment officer. The real risk is that Ivascyn becomes spread too thin and is no longer as focused on managing PIMCO Dynamic Income and PIMCO Dynamic Credit Income as he was before. Another risk is Ivascyn and Alfred Murata may lose the incentive to feed their best ideas to the Dynamic Duo now that Gross is no longer their boss.
 
Note that, at current prices, PIMCO Dynamic Income and PIMCO Dynamic Credit are not that much lower than the prices I paid when I added them in early August. I will be nibbling in my personal accounts, but ETFInvestor's portfolios will be standing pat for now. If prices continue to decline (as I suspect they will), I will add.

This is one of those times when you should ask yourself whether you have the temperament to own CEFs. If you need to be talked off the ledge, you probably shouldn't be in CEFs in the first place, or at least keep them a very small portion of your portfolio. Treat Mr. Market as your servant--not your master.

Regards,

Samuel Lee
Strategist
Editor, Morningstar ETFInvestor

Disclosure: I own all the funds in the Income and Asset-Allocation Portfolios.

Portfolio Holdings
Income Portfolio
ETF
YTD Ret %
Price $
4.5
108.7
CASH$
N/A
1.0
2.5
59.7
1.7
62.6
0.9
11.8
-5.2
22.4
10.3
31.6
0.2
38.7
6.2
23.2
Global Asset Allocation Portfolio
ETF
YTD Ret %
Price $
3.8
108.7
CASH$
N/A
1.0
2.5
59.7
-1.3
22.4
6.3
31.6
0.2
38.7
-4.4
39.8
1.9
77.3
6.2
23.2
Most Popular ETFs
ETF Name
YTD Rtn %
3 Yr Rtn %
Trading Vol.
NASDAQ 100 Trust Shares
-10.76
1.45
125,000,944
SPDRs
-3.64
2.68
87,466,496
Semiconductor HOLDRs
-6.23
-11.66
26,838,700
iShares MSCI Japan Index
-6.59
7.18
17,256,500
iShares Russell 2000 Index
-7.46
6.43
16,210,700
Energy Select Sector SPDR
15.88
15.50
14,900,000
Financial Select Sector SPDR
-8.42
2.61
11,612,800
DIAMONDS Trust, Series 1
-3.75
2.21
7,350,600
Utilities Select Sector SPDR
6.84
6.82
3,848,200
Materials Select Sector SPDR
-4.31
8.50
2,179,300
 
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