Personal finance: Laggards and leaders

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Indy Lifestyle Online
How reassuring it was to see the FTSE 250 and the SmallCap Indices move into new high ground this week. The bad news is that it highlights how difficult it is to find value amongst the top 100 companies. Still, at least it shows that UK managers are not completely bound into buying only those shares that the global money shunters are prepared to consider.

Of course, it remains the increasing popularity of tracker funds that have been driving the big market capitalisation stocks. Witness the way in which Misys shed a few pennies while Compass received a boost to its share price on the news that the contract caterer rather than the IT specialist achieved the coveted place in the index of Britain's 100 most successful companies.

It was Dixons that received the wooden spoon. It tells you a lot about UK PLC when a leading retailer loses its coveted slot and the main contenders are pure service businesses. Interestingly, Misys would have been the only IT company to have earned a place in the index.

How different things are in the US. Aside from the fact that Microsoft is now the world's second or third-largest company in terms of market capitalisation, you only have to see the way in which any business linked with helping the internet operate finds its shares instantly in demand. If you look at the top 25 internet companies in America, you find they are worth in aggregate nearly $40bn. Very appropriate, you may say, but most of them do not make a profit. That amounts to a great deal of faith out there concerning the world wide web. I hope it is justified.

If I were seeking to tuck money away wisely at present, I would be tempted to trawl the second 250 stocks in the FTSE Index. Sometimes known as the Tootsie, these are now big companies, many of them worth comfortably over pounds 1bn. They have been left out of the equity rush, partly because they tend not to excite those American managers trying to gain a toe-hold in Europe.

It is the growth of support for FTSE 100 funds that causes me most concern. What happens if the market takes a dive? Just as indexation has become a driving force for the market, so it could accelerate any bear market and intensify its severity. At least a reverse would give active managers a chance to come back into their own.

At present our own researchers rather favour two acronyms from within the second tier of Britain's companies. BTP and Emap are very different businesses. Capitalised at pounds 600m and pounds 214bn respectively, one lingers just outside the FTSE 100, while the other represents a more typical medium- size British company. Emap (or East Midlands Allied Press as it used to be known) has become less - much less - of a regional press concern that a European magazine and regional broadcasting group. BTP used to be known as British Tar Products and produces specialist chemicals for industrial giants. Both look capable of sustaining above average growth, while enjoying what is these days relatively modest ratings. Sadly, neither are technology stocks, but that may save you money in the short term.

Brian Tora is chairman of the Greig Middleton Investment Strategy Committee.

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