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 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:

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

GLOBAL EQUITY PORTFOLIO

Comment:

We have only made modest changes in the FP Model weightings for Q1 1998. Within the developed markets element of the Model, we are recommending a 40% exposure to North American (and we mean US) equities. This represents a small increase from last time but, as the US market has held up relatively well under difficult and turbulent conditions, readers who have followed our Model recently may already see portfolio weightings at around 40%. Japan remains a difficult call but our concerns lead us to further reduce our weighting in favour of the UK. We are maintaining our European weighting.

Overall, we retain an 80% weighting in the developed markets, marginally ahead of that recommended last quarter. Within the Emerging Markets, we continue to focus upon Latin America and Emerging Europe at the expense of Asia as we believe that it will be some months before markets recover. Within the region we still prefer North Asia (excluding Korea).

GLOBAL BOND PORTFOLIO

Comment:

We are making no changes 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 subscribe to the view taken by several of the leading global bond managers that there is further scope for US interest rates to fall.

GLOBAL EMERGING MARKETS PORTFOLIO

Comment:

Our decision to heavily underweight the Asian markets at the expense of Latin America and Emerging Europe proved to be correct. Perhaps we should have been even firmer in our conviction to avoid the area. We did avoid the ASEAN markets but, of course, even the North Asian markets suffered badly. The average fund weighting in the region has declined from 32.4% to 23.3% in the last three months. Much of this shift has come about as a result of relative market movement and we see increased weightings in Latin America and Emerging Europe. Cash balances are also higher.

Although the Latin American and Emerging European markets enjoyed good returns throughout 1997, we believe there is scope for them to continue outperforming the Asian markets and we have therefore decided to underweight South East Asia. It will remain important to be tightly focused and we still prefer Hong Kong and China to the ASEAN group.

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 Q4 1997 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 Q4 1997 weightings in parenthesis.

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 70% weighting in US equities comprises a core weighting of 50% together with 50% of the 40% 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 show the figures for Q4 1997 in parenthesis.

Performance Review for the Period Up to 31^st December 1997

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 31^st December 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.

This Global Asset Allocations 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 -

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