By Forsyth Partners Limited

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 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:

• Developed Markets include North America, Japan, Continental Europe and the UK
• 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 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. Please note, however, that the performance information is usually updated 1 month after release/publication of the asset allocation models.

GLOBAL EQUITY PORTFOLIO

Comment:

This month we have made some reasonably significant changes to the FP Model weightings. Within the developed markets element of the Model, we are recommending a 42.5% exposure to North America, a boost from last time. Because of market movement this may mean that little portfolio activity is required as the 40% weighting for Q1 1998 has approached 42%. We have decided to eliminate the Japanese weighting. The market does not appear to be making any progress and the Government’s fiscal packages seem to have had no effect. This is quite a significant debt against he benchmark and the peer group. See the portfolio commentary at the end of this document for further discussion. Although the European markets have been strong we can see much further upside. Consequently, we increased the Model weighting to 30%. Because of market movement, last time’s 20% figure had already translated into a 23% weighting.

The outlook for emerging markets seems less promising. We have reduced our weighting by 5% and the figures above flow from the proportions set out in the Global Emerging Markets Portfolio.

GLOBAL BOND PORTFOLIO

Comment:

We are only making a small change in the structure of our Global Bond Model. We remain content with a heavy exposure towards US Dollar denominated bonds and particularly favour the US market. This bond market has proved to be resilient over the last quarter and we continue subscribe to the view taken by several of the leading global bond managers that there may be further scope for US interest rates to fall. We note that the trend amongst the global managers is in favour of US bonds. We still show zero commitment to Japanese bonds.

In Europe, we have decided to cut exposure as yield convergence has more than begun. As it seems more difficult to make money in the bond markets we believe that it is appropriate to boost the commitment to emerging market bonds. Yield spreads still look attractive and the risks are not what they were.

GLOBAL EMERGING MARKETS PORTFOLIO

Comment:

On balance, we were probably correct to reduce our Asian weighting last quarter although we clearly missed the selected rises in Thailand and Korea. We still remain cautious about the prospect for the markets generally and our view appears to be shared by the global fund managers, where we see the average fund scarcely altering its weightings. We need to be watchful of the situation as it is possible that some markets could race ahead quickly. Whether there are any grounds for such a move to occur is debatable.

In Emerging Europe, events in Russia have dominated sentiment. We continue to feature this market in our module simply because of its size and also because any upturn would occur very quickly. Barring a major political crisis, we believe that the market will move ahead during the year. Other Eastern and Southern European markets are benefiting from the integration effect.

Latin America progresses steadily affected by Asia and oil price movements on the downside but it still offers good long term value.

BALANCED PORTFOLIOS

Comment:

The Balanced Portfolios have been constructed under three scenarios –

• 70/30 equity/bond
• 50/50 equity /bond and
• 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 Q1 1998 weightings in parenthesis.

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 expect 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 Q1 1998 weightings in parenthesis.

CURRENCY TILTED PORTFOLIOS

Comment:

The Currency Tilted Portfolios recognise that many investors prefer to have a substantial proportion of their assets held in their home currency or country. 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 71.2% weighting in US equities comprises a core weighting of 50% together with 50% of the 42.5% 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.

We are showing in parenthesis the figures for Q1 1998.

PERFORMANCE REVIEW

This Performance Review for the Period Up to 31^st March 1998

Notes:

• All figures calculated in US Dollars on a bid to bid basis with gross income reinvested.
• Indices used are MSCI World, Salomon World Government Bond and MSCI Emerging World Index.
• Performance data extracted for Hindsight; other calculations prepared by Forsyth Partners.
• Figures calculated 1^st January 1998 to 31^st March 1998.
• FP Model performance calculations are based on funds recommended for the first three months of 1998 on an equally weighted basis on specific recommendations by market as featured in this Asset Allocation Review.
• 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.
• 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.

This document is issued by Forsyth Partners Limited, which is regulated in the conduct of investment business by IMRO. This extract from their research should be read in conjunction with the Methodology and Background Notes Module which forms part of the Research Manual which is published by Forsyth Partners Limited and is available on subscription and, in particular, attention is drawn to the emerging market risks warnings contained therein. The price of shares/units and the income from them can fall as well as rise and the value of an investment can vary upwards or downwards depending on exchange rate movements. © Forsyth Partners Limited – FORSYTH PARTNERS LTD, 18 BARCLAY ROAD, CROYDON, CRO 1JN UK.

Tel: +44 181 649 9440/Fax: + 44 181 649 9441