Continued from page 20ing stocks, and have significantly underweighted those issues.
A caveat is that if interest rates go up, watch out for the market, watch out for growth stocks. An uptick in interest rates would prompt us to move aggressively in the direction of value and on our tactical asset allocation accounts aggressively away from stocks.
MR. SPEIDELL: Well, this is what makes a market. We are not great fans of the large "safe growth stocks," but we are fans of growth stocks; and we believe you have to find growth wherever it lurks. The search is not an easy one, particularly in the kind of environment we are looking for with relatively slow growth and, relatively speaking, lower overall market returns. What we are finding is that the consumer sector is, by and large, not the strongest one given the debt levels and the early indications of Christmas sales.
We are finding there are a lot of very interesting things out there even in technology, which is very controversial now. Within that, there are a lot of companies related to networking, the Internet, personal use of computers and so forth where we are finding a lot of attractive opportunity. And I would agree with Sarah on some of the cyclical areas. Some of the companies in the paper industry, for example, are showing, on a bottom-up basis, very attractive fundamentals.
MR. ABRAMS: I believe the most inefficiently valued sector of the U.S. equity market is the midcap sector. We would define that as $500 million to $2 billion in market cap. I think there is a lot of money beginning or continuing to move in that direction, realizing these are the companies that have become too big for the small-cap guys yet are too small for the big-cap players. So they lose their investor constituency and they become mispriced. There is a growing number of people starting to plow that field, and I think the results there will continue to be well above average for another year, maybe longer.
Small-cap still attractive
The second most attractive area is still the small-cap area, because the electronic and medical or electronic and health care area in this country has been a terrific spawning ground for small companies. There is a high failure rate, a lot of disappointments, but it's still a very dynamic area.
Both of those areas will dramatically outperform, in terms of earnings and stock price, anything we see out of the big-cap area, the S&P 500 type names. So that's where I'd be.