A Word From The Advisor

We are continuously searching for ways to improve the risk/return profile of your portfolio. Stocks with excellent investment potential may come from anywhere. As seen in Exhibit A on page 4, US-listed stocks account for only 28% of the world’s stock, and over half of the world’s largest public companies are located outside of the US. On occasion, allocating a percentage of your portfolio to investments in other markets helps reduce long-term volatility and allows you to capitalize on some great non-US companies. Oakwood Capital Management LLC has a long history of investing in multinational companies and ADRs.

We have found that currently, the most efficient, cost effective and flexible way to achieve a direct investment in the international marketplace is through the use of exchange traded funds, also known as ETF’s. At the most basic level, an ETF is just what its name implies: a basket of securities that is traded, like an individual stock, on the American Stock Exchange. An ETF allows us to buy an interest in an entire portfolio of international securities by purchasing a single security. It trades like a stock, is continuously priced throughout the day, and is highly liquid.

International ETF’s are one of the many tools available to us as a professional active money manager, and, from time to time, we will choose to include them as one position among many in a well-diversified equity portfolio. We have singled out, in particular, the Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index Fund, or EAFE Index, which is the second largest ETF overall with about $31.2 billion in assets, and the MSCI Emerging Markets Index Fund, with about $12 billion in assets. They provide diversification into both the developed and emerging economies of our increasingly globalized world.

Companies contained in the MSCI EAFE Index Fund, in general, are domiciled in countries that are considered developed, and would be the equivalent to “blue chip” companies in the US. The MSCI Emerging Markets Index Fund contains companies from countries whose economies vary from very big to very small, and are usually considered emerging because of their developments and reforms. Hence, even though China is deemed one of the world’s economic powerhouses, it is lumped into the category alongside much smaller economies with a great deal less resources, like Hungary. Both China and Hungary belong to this category because both have embarked on economic development and reform programs, and have begun to open up their markets and “emerge” onto the global scene. You can learn more about ETF’s at www.ishares.com.

As we enter the fourth quarter of the year, we encourage you to take the time to review your third quarter statements, and the information contained therein regarding your tax situation. Let us know if you have experienced any significant taxable events outside of your Oakwood accounts. We would also like to discuss any changes in your investment goals. Should you have questions regarding this or any other investment matter, please feel free to call us at (800) 586-0600.