Friday, May 12, 2006

A Merrill Lynch index for all seasons :: Part 3 of 4

This is part three of a four part series. Part two discussed the Merrill Lynch Interest Rate Sensitive Index.

The third index in the Merrill Lynch basic 4 series, a set of indices containing companies affected by different parts of the economic cycle, is the
The Merrill Lynch Stable Growth Index.

The index components are select beverages, foods, household products, packaged goods, pharmaceuticals and tobacco stocks in the S&P 500. These companies have earnings that are not very sensitive to the economic cycle. While you would expect that this index would be very stable, in reality it sensitive to investor psychology depending on if a flight to or flight from quality is occurring. Companies like Pfizer (PFE), Procter & Gamble (PG), and Johnson & Johnson (JNJ) are boring. They may be very profitable, and they may raise dividends each year, but they lack the transient sparkle of Google (GOOG) or Evergreen Solar (ESLR).


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