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A question of style

The issue of investment style isn't about value versus growth, Templeton Global Advisors president Jeff Everett says, it's really about active versus passive management.

Wednesday, March 27th 2002, 1:58AM

Everett, who manages money for the top-performing BNZ International Equity Trust, was in New Zealand last week for a bank-sponsored roadshow.

He says although the major market indices went backwards last year there were still great opportunities for managers who take a stock-picking approach.

For instance, while the MSCI fell last year, nearly half the 2000 stocks in the index went up (see graph).

Everett says environments like this are a stock picker's nirvana.

He says the question of management style is even more important than usual as many large cap stocks (which index funds are forced to buy) are overvalued.

"Index investors have had their clock cleaned because the most inflated stocks were largest indexed stocks."

He contends that the performance of active funds, such as the one he manages, compared to index funds proves the point that indexing is not a great strategy.

"We proved, in the US, that (indexing) was a faulty way to invest," he says.

"Index investors have had their clock cleaned because the most inflated stocks were largest indexed stocks."

While Everett is not a great fan of passive management he does concede there is a place for it.

His point is that "people place far too much emphasis on index funds to achieve long term superior returns."

"People are putting too little emphasis on active management."

On the issue of value/growth styles, Everett expects the big differences between the two types of stocks over recent years is likely to diminish.

His view is that performance will revert to historical means.

Everett says Templeton's is a bottom-up stock picker and its style is a mix of value and growth. He dismisses the notion that Templeton is what's known as a deep value manager.

"I refuse to accept the moniker of deep value per se as a lot of our value stocks have good growth prospects.

"That's the real genius of (our) approach. If you take a long term view you give your companies the chance to grow into their valuations."

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