Where do you stand on China?
We have been underweight in Chinese shares since the first quarter of 2007, after being overweight for five years. Long-term demographic shifts in the economy are favorable, but over the next one to three years, we're having a hard time finding a catalyst for the Chinese stock market. Growth is strong, but it's expensive. Long term, there's obviously good opportunities in China, but at the moment, there are better opportunities in Asia, such as South Korea. What's the case for investing in South Korea?
South Korea is our biggest weighting in Asia (by percentage of portfolio assets invested there). We don't consider it "emerging": It's very competitively positioned, is experiencing high demand for its products, and it has well-run companies that are exporting at a high level. At the country level, we expect earnings per share growth over the next 12 months by 16 percent, and it's trading at a price-earnings ratio of 9.8. Technology stocks are one of the biggest drivers of South Korea's economy; Samsung is one of our larger positions, as is LG Electronics. Do you invest in any frontier markets?
International investing is risky. Many of the frontier countries, while they might be very interesting for private equity funds or very sophisticated investors, are too risky for our client base. Our risk process is to exclude countries from our benchmark—the MSCI All Country Ex US index—that are too risky. An example is Russia. Many of our peers have been involved in Russia (it's part of benchmark), but we consider it to be one of the most corrupt corporate business environments of all the countries we monitor, and that's why we see it as excessively risky.