Since September 2010, emerging markets stocks are up 8% on average while the rest of the world is up 80%, according to American Funds president Robert Lovelace. One explanation behind the dramatic disparity in performance is that emerging market indexes are overweight with state-owned or state-influenced enterprises that exist for many reasons besides the enhancement of shareholder value.

The issue of value investing and value traps was the subject of a general session at Morningstar's annual investment conference in Chicago this morning. The panelists included Lovelace, Oakmark's David Herro and Causeway Capital Management’s Harry Hartford.

Hartford noted that values in the developed world aren't nearly as compelling as they were four years ago and he agreed with Lovelace that where a company does business is at least as important, if not more so, than where it is domiciled.

Despite Oakmark's reputation as a stellar value investor, Herro noted that quality was at least as important as value. Oakmark tries to purchase equities that are selling at 40 percent below their intrinsic value, a task that becomes challenging after a huge run-up in stocks like the bull market that began in 2009.

The three panelists agreed that the skill of a company’s management team in using free cash flow is a central factor in their analysis. Herro said this is often a glaring problem with state-owned businesses. "Chinese banks look cheap," but with all the real estate problems in that nation, Herro questions whether the 1 percent loan loss rates they are reporting is accurate.

Indeed, during the Japanese real estate bust of the 1990s, there was a joke in Tokyo banking circles that a rolling loan gathers no loss.

Brazil's Petrobras has all sorts of oil reserves, but the political challenges have left questions about whether those reserves can be produced.

All three acknowledged that they were enthusiastic about "the generational changes" happening and were looking for companies with exposure to consumption trends in the emerging world. Herro cited BMW as one example of a company taking advantage of these trends. So far in 2014, BMW is deriving 24% of its sales from China. Last year at this time it was 20%.

Emerging market indexes are dominated by banks, commodity concerns and telecom and other state-owned companies, Lovelace reiterated, while health care and technology companies are underrepresented. "If you want to invest in rising living standards, invest in companies like Nestle, Unilever and BMW," he said.

Lovelace looks at companies’ dividend histories in a very different way than many advisors and the vast majority of their clients do. It's not just about delivering income to investors.