EUROPEAN PORTFOLIO

VALUE AND YIELD APPROACH IN GROWTH STOCKS

The basic value and yield approach was presented in the May 2003 and November 2003 issues.

The May 2003 portfolio, High Yielding Stocks in a Low Yield Environment, resulted in a temporary disappointment in the summer of 2003, as the equities markets had taken off in a strong manner, penalising the performance of the defensive stocks in favour of growth stocks. A new portfolio was presented in the September 2003 issue, The Value and Yield Approach in Growth Stocks, which included only value stocks in the growth segment.

The fairly regular underperformance of the May 2003 issue value style portfolio was reversed in the middle of January 2004, resulting in a strong performance since inception (+27.56 per cent) against a positive result of the Eurostoxx600 of +18.10 per cent. This is an impressive performance.

The September 2003 growth portfolio also shows an excellent performance of +27.92 per cent versus the +7.48 per cent of the Eurostoxx600. The outperformance has however flattened considerably since the middle of January 2004, when the investment theme obviously changed from growth to value style. The value and yield approach is excellent for both styles, but a strong outperformance depends on the correct selection of the style. How can this be achieved?

A simple way of measuring the performance of value against growth is by comparing the Nasdaq100 Index to the Dow Jones Industrial Average. At present, the trend of growth compared to value on a 90-day moving average basis is still pointing to the downside, despite a flattening of the curve.

The portfolio to be built for the next few months therefore has strong value characteristics, similar to the one created for the May 2003 issue.

For further information on Brainpower’s professional portfolio analysis software, please visit www.brainpowerweb.com or contact Andrew Deakin on +44 (0) 20 7337 9123