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Investment View

You may have gathered from my silence on the subject that I did not attend

the PIMS conference this year. Recently, it has unfortunately clashed with

an important corporate event. But not to be denied an opportunity to

indulge in a little ocean madness, those kind people at Richmond Events

invited me to the Communication Directors Forum. I have just returned. My

liver will doubtless follow.

Why attend? We do not always get our message across sufficiently well in

this industry. No surprise, then, at the poor representation from financial

services companies. The conference did provide an opportunity to reflect

upon the first half of 2000. It has not exactly set the world alight.

Markets have at best moved sideways and it has been easy to lose money over

recent months. The FTSE 100 index isnearly 10 per cent off its peak,

achieved at the end of 1999, having been even lower. Factor in the recent

weakness of sterling and this has not been a profitable year so far.

It is surprisingly rare for the stockmarket not to post some sort of a

gain during a calendar year. Even in 1987, prices ended the year higher

than they began. This year could be one of those occasions when investors

lose money overall. But the average hides some major winners and losers.

Only index-trackers are guaranteed to lose out from this scenario.

Among the more interesting recent comparisons has been the performance of

FTSE 350 High Yielding and Low Yielding indices. Put in simple terms, it

compares value and growth. At the beginning of this year, the charts

showed the lower-yielding half of the FTSE 350 comprehensively

beatinghigher yielders on a total return basis.

In other words, higher dividends did not compensate for the significantly

better capital performance of growth stocks. All this is changing, though.

As the peak of the technology market was reached, so the gap started to

narrow between the two halves of the 350 index. They have yet to come

together completely on a two-year view but higher-yieldingshares have now

outperformed the lower-yielding half by15 per cent since the beginning of

the year. Look at the sectors that are leading the league tables and you

will find it is those to which good old fashioned value characteristics

attach.

The message in all this is that the easy money has been made and, even

though the personal savings sector looks set to grow massively in the years

ahead, making the right investment decisions is becoming more difficult.

Technical considerations should not be ignored. By that, I do not mean the

influence of charts but rather how central bankers and governments effect

things. Markets may now be all powerful but when central banks pumped money

into the system to counter a possible blip caused by the millennium bug –

as was undoubtedly the case at the end of last year – it can distort market

performance. Indeed, the surge we saw at the end of 1999 in markets owed as

much to added liquidity as to any belief that Y2K was less of a problem

than had been previously feared. This money has been quietly withdrawn.

There should be no surprise that markets have retraced their steps.

Meanwhile, it is increasingly looking as though the turning point in the

relationship between the euro and sterling has finally been reached. I am

not retracting my earlier comments that the long-term outlook for a single

European currency remains cloudy but it is clear that the future of this

country is more bound up with that of Europe than many Euro-sceptics would

care to admit. Concerns that inward investment may decline as resources are

directed elsewhere in euroland are probably not overstated. That house in

France might be 5 per cent or so more expensive than at Easter but it is

unlikely to become any cheaper in the medium term.

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