Outlook remains uncertain with little reassurances from companies (page 3 of 3)

The result is 12% higher yoy but 8% below the 2001 Q1 result. A surprise was the lower than expected production growth. EPS for the period is EUR 1.14, an increase of 21% on the year previous. Both crude oil and natural gas prices are expected to remain soft for the rest of the year. Given this implied weakness, coupled with potentially declining volume growth, we feel that it will become increasingly difficult for the company to maintain such strong operational performances. Currently, we prefer Total Fina.

Aventis (AVE FP, EUR 85.6) released strong 2Q figures and raised its full-year earnings targets. The earnings increased 31%, helped by demand for the blood-thinner Lovenox for thrombosis, cancer drug Taxotere and antihistamine Allegra as well as the merger-related cost savings. We are comfortable with the figures released but the company needs new medicines to boost earnings as the scope for more cost cuts begins to lessen. For now, we prefer Glaxo and Roche.

Funds

In line with our increased asset allocation for US equities (30%) we recommend the following funds for a diversified exposure to the US market.

One of our core holdings which we highlighted in the 26th March issue is the Putnam Growth and Income (US Value) Fund. The fund invests in large established US companies following a value approach.

As 'Growth and Value' moves in different (unpredictable) cycles, we stress the importance to balance the portfolio with both 'growth and value' focusing funds. The Russell 1000 Growth Index shows an average return of 14.59% from June 1979 to June 2001 whereas the Russell 1000 Value Index has returned 15.39% in the same period.

For a 'growth' exposure to the US market, we recommend ACM Global American Growth Portfolio. Please note that this fund is only appropriate for aggressive investors as it follows a stockpicking approach which can involve high volatility. The portfolio invests in high quality, well-established companies and are selected for their dominant industry positions, superior management capabilities and attractive growth rates. The fund moved recently away from technology stocks (17%) towards financial (19%), healthcare (19%) which comprises pharmaceutical & biotechnology & some energy stocks (7%). This decision was made at an individual stock level based on an evaluation of risk-to-return (purely stock selection basis), trimming into strength for stocks that have gone up significantly into stocks that perhaps have been weaker or underperformed of late and not due to sector allocation.

ACM's large cap growth team manages over USD 68 billion in assets with an average account size of over USD 109 million.
The fund is rated by S&P AA and by Micropal 4 stars.

Another fund which we would like to highlight is the Credit Suisse Equity Fund (Lux) USA B. Historically, the fund is less volatile as it is more in line with the S&P Index. The managers aim to achieve its investment objective by concentrating on leading companies which are most able to effectively capitalize on global unit growth for their products or services, as well as companies that can improve their return on assets by restructuring.
The fund is rated 5 star by Micropal and won the Lipper US equities award in 2000.

Small caps continued to outperform large caps (the Russell 2000 is up 5.75% YTD compared to S&P -5% and Dow Jones -1.5%) and we would like to reiterate our recommendation made on 21th May: Schroders US Small Cap.

A fund which brings together a value approach and investing in smaller companies, is the Nordea 1 North America Value Fund. The fund's value strategy is based on the earnings power and the financial strength of the companies. Their investment philosophy will generally lead towards companies with good businesses enjoying healthy prospects, i.e. companies that are undervalued with respect to their real earning power. This is opposed to merely cheap companies, which have low valuations but also suffer low profitability.

Nordea is the newly formed financial group springing from the merger of four of the Nordic region's leading banks (Denmark's Unibank, Finland's Merita Bank, Norway's Christiania Bank og Kreditkasse and Sweden's Nordbanken). They have total assets of around EUR 230 and are actively pursuing a strategy of expansion in asset management. In this area, the group manages capital of over EUR 100 bn, one third of which is placed in investment funds. Nordea has succeeded in becoming the leading Nordic asset manager. Investment opportunities are identified through independent research of individual companies. The fund is rated 5 star by Micropal.