I am disappointed with your May 2 front page article "Nixon policies still haunt."
This article should have been placed in the biased "Opinion" section, if even published.
No matter what your political agenda is, the opening of China and ERISA, the Employee Retirement Income Security Act of 1974, were landmark events.
An article as opinionated and inaccurate as "Nixon policies still haunt" casts serious doubts regarding the accuracy, objectivity and integrity of the remainder of you publication.
I refer to the most interesting Portfolio Management article by Bruce E. Clarke and Anthony W. Ryan, both of PanAgora Asset Management, on page 28 of the May 30 issue.
They state that "the rationale for a country weighting scheme based on market capitalization is derived from Modern Portfolio Theory and the theory of efficient markets."
It should be pointed out though that Morgan Stanley Capital International's Europe Australasia Far East index is flawed from this perspective.
In countries such as Japan and Germany, quoted corporations or banks own substantial amounts of quoted equity in other companies.
If this is not allowed for in composing indexes, a double counting of equity (and hence size) will result.
The double counting occurs because the company or bank holding the shares in other companies will value those shares in its own market capitalization but those shares also will be accounted for again in the market capitalization of the other companies whose shares are held.
This double counting is why the capitalization of closed-end quoted companies is excluded from indexes. Corporate structure makes this impossible in some countries overseas. There is also a value issue here since accounting methods exclude some earnings when this occurs.
The effect is market inefficiency since foreigners weighting against an EAFE-based index will believe the market is larger than it really is.
This inefficiency, in turn, means that when foreigners are increasing their overseas investment, they will be trying to buy more shares than exist producing an illusion of short-term performance.
Conversely poor performance will occur when foreigners sell because of the inefficiency they have created.
The use of EAFE is convenient and can even help international markets to outperform but leads to market inefficiency which should be appreciated.
Norton International Inc.
In the May 16 directory of money managers, Rothschild Asset Management Inc. was omitted inadvertently.
RAM is an active domestic equity manager. Rothschild offers fully invested products designed to provide superior performance relative to their benchmarks, with greater consistency and lower risk than other managers.
Our investment approach begins with a stock selection model designed to balance momentum and valuation measures in a way that will be effective under varying market conditions.
As of Jan. 1, Rothschild Asset Management had $867 million under management, $623 million of which was for tax-exempt clients. RAM is a wholly owned subsidiary of Rothschild North America. Mark K. Tavel is president and chief investment officer. I am client contact.
George M. Richvalsky
Rothschild Asset Management Inc.
Our firm was not included in your annual directory of money managers in the May 16 issue.
First Honolulu Asset Management/FH Biovest Partners is an active equity and fixed-income manager specializing in mid-cap value and small-cap health care.
The firm has $7.9 million under management, $4.9 million of which is U.S. tax-exempt discretionary assets.
First Honolulu uses a proprietary computer model, bottom-up Graham and Dodd approach, with a fundamental analysis overlay approach to identify undervalued sectors and specific companies.
Fixed-income accounts are tailored to the cash flow needs of the client with an emphasis on uncovering undervaluations based on market misperception of the issuer's credit risk.
The asset mix Jan. 1 was 52% stocks, 43% bonds, 5% cash. David G. Watumull Jr. is chief investment officer. I am the client contact.
First Honolulu Asset Management Inc.
There was one mistake in the May 30 article on page 18 regarding my purchase of Style Advisor.
Style Advisor was not developed by Ken Winston prior to his joining Balch Hardy Scheinman & Winston Inc. Ken Winston became a partner in BHSW in 1991. The idea of developing a program such as Style Advisor was not even considered until a couple of years later.
Style Advisor was developed by BHSW while Ken Winston was director of research for the firm. The actual programming of Style Advisor was done by Markov Processes. As for the design and determination of what would be included in the software package, that was a team effort by several members of BHSW and cannot be attributed to any one individual.
Zephyr Associates Inc.
Zephyr Cove, Nev.