By Forsyth Partners Limited

INTRODUCTION

We feature a series of model portfolios with the intention of providing practical guidance for readers. It is updated and published quarterly.

The core portfolios are Global Equities, Global Bonds and Global Emerging Markets. In each of these we show the 'FP Model Portfolios' compared with a major benchmark indices and an average of the positions of the leading fund managers.

Whilst we indicate specific percentage weightings, these should be used as broad guides and readers may wish to manage portfolios in a practical sense by considering exposure in terms of "ranges".

We divide the world into two broad groupings:

(i) Developed Markets include North America, Japan, Continental Europe and the UK

(ii) Emerging Markets are featured on a regional basis to include South East Asia, Latin America and Emerging Europe, Africa & Middle East.

We also specify a number of portfolio variations based upon the core portfolios noted above. These include a series of Balanced Portfolios, a Positive Growth Portfolio and, for the first time, Currency Tilted Portfolios for Sterling, US Dollar and European investors who wish to retain a heavy proportion of their assets in their base currency. These portfolios are described from pure equity and balanced portfolio perspectives.

Last but not least we also feature performance information showing the results achieved. Click here for further information

GLOBAL EQUITY PORTFOLIO

Comment:

We have made some changes in the FP Model weightings for Q4. Our decision last time, to boost the Japanese weighting and bring it more into line with the average manager was not a good one. This time, we have decided to revert to our underweight stance and recommended exposure comes back from 14.5% to 10%. We believe that the case for America is still strong and we have diverted further funds into this market. Our Continental European and UK weightings remain unchanged.

Within the emerging markets, we have further reduced our Asian exposure. The Asian markets have already suffered significant losses but we believe the prospects remain bleak for the next quarter with perhaps brighter news coming through in early 1998. Even Hong Kong and China have not escaped but the weakness here has been relatively mild. These remain our favoured Asian markets. We have boosted our Latin America weighting and that of Emerging Europe. It is likely that we shall maintain a strongly overweight position in the latter for the foreseeable future. performance information

GLOBAL BOND PORTFOLIO

Comment:

This quarter we are making a small shift towards US bonds at the expense of European bonds. In absolute and relative terms we believe that US bonds represent the best value and our analysis shows most bond fund managers believe that inflationary concerns are overstated. We still retain a 15% weighting in the European bloc but concerns about EMU implementation and the likely direction of interest rates forces us to proceed with caution. This is the second consecutive quarter in which we have made a shift away from the European bloc. Sterling bonds continue to remain attractive with possible participation in the EMU process at an earlier stage than originally envisaged lending support particularly at the long end of the yield curve. performance information

GLOBAL EMERGING MARKETS PORTFOLIO

Comment:

The regional emerging market weightings featured above flow from the proportions set out in our Global Equity Model. We have been proved correct in our decision to heavily underweight the Asian markets at the expense of Latin America and Emerging Europe. We are continuing with this aggressive underweighting although we note that the average fund has also seen its weighting decline but much of this is due to market movement. Hong Kong and China remain attractive but the short term prospects for the Asian markets are poor. We believe that a turnaround in sentiment could occur quickly but not in the next quarter. We may need to be very nimble early next year to ensure that our weighting is increased to capture this inevitable turnaround.

Elsewhere, we believe strongly in the long term story for Emerging Europe. In Latin America, our focus on regional funds is maintained and, although Brazil dipped early in Q3, we remain long term bulls. performance information

BALANCED PORTFOLIOS

Comment:

The Balanced Portfolios have been constructed under three scenarios –

(i) 70/30 equity/bond

(ii) 50/50 equity /bond and

(iii) 30/70 equity/bond.

The purpose of providing three scenarios is to enable readers to choose the most appropriate model to select specific client risk profiles. The composition of the models flows directly from the Global Equity Portfolio and the Global Bond Portfolio. The figures show Q3 weightings in parenthesis. performance information

POSITIVE EQUITY GROWTH PORTFOLIO

Comment:

The Positive Equity Growth Portfolio is intended for investors who wish to take a long term (5+ years) view. Over this time horizon we believe that it is reasonable to believe that equities will outperform bonds and that emerging markets should outperform developed markets although higher volatility levels will feature in the former. The composition of the models flows directly from the Global Equity Portfolio and the Global Emerging Markets Portfolio. The figures show Q3 weightings in parenthesis. performance information

CURRENCY TILTED PORTFOLIOS

Comment:

The Currency Tilted Models are a new feature in our Asset Allocation Module. We are aware that a number of advisors and their clients prefer to hold a significant proportion of their assets in either equities or bonds in their home market. The "Equity Only" portfolio above is constructed from the Global Equity Model. However, the figures reflect a 50% weighting in the home equity market before the Global Equity Model is applied. For example, in the US Dollar tilted model, the 69.3% weighting in US equities comprises a core weighting of 50% together with 50% of the 38.5% US exposure in the Global Equity Model.

The same principles are applied in structuring the "Balanced 50:50" portfolio. The method of determining the equity element is the same as that on the "Equity Only" portfolio. The bond content also follows the same principle, with a 50% weighting in the home bond market before the core Global Bond Model is applied.

Although these models are only introduced for Q4, we are showing in parenthesis what the figures would have looked like at the beginning of Q3 using the arithmetical structure which we follow. performance information

Calendar 1997 to 30th September

Notes:

1) All figures calculated in US Dollars on a bid to bid basis with gross income reinvested.

2) Indices used are MSCI World, Salomon World Government Bond and MSCI Emerging World Index.

3) Performance data extracted for Hindsight; other calculations prepared by Forsyth Partners.

4) Figures Calculated 31 December 1996 to 30 September 1997.

5) FP Model performance calculations are based on funds recommended (i) for the first six months of 1997 on an equally weighted basis and (ii) for the subsequent three months on the basis on specific recommendations by market as featured in this Asset Allocation Review.

6) Index performance calculations are based on: (i) in the case of equities, MSCI weightings adjusted for the performance of the domestic MSCI Index in the relevant market and (ii) in the case of bonds, Salomon World Government Bond Index performance.

7) Average Manager performance calculations are based on the Average Manager weightings at the beginning of each quarter, with the appropriate domestic MSCI or Salomon World Government Bond Index movement applied to these weightings.

Forsyth Partners Limited, is regulated in the conduct of investment business by IMRO. These Asset Allocation Models form only a part of their Research entitled Continental Portfolios © Forsyth Partners Limited which is available on subscription. This contains Methodology, Background Notes and Fund Recommendations. For further information please contact:

FORSYTH PARTNERS LTD, 18 BARCLAY ROAD, CROYDON, CRO 1JN UK.
Tel: +44 181 649 9440 Fax: + 44 181 649 9441

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