Gazebo, a San Mateo, Calif.-based financial products company, has developed a product that will provide investors with a way to invest in bigger-picture, news-related issues, rather than individual stocks.
"This is an alternative way to build a portfolio in this crazy market," said Laurie Conner, president of Gazebo. "A portfolio manager may not want, or be able to, short [the market] or buy puts or derivative futures. Going bearish without going short is really the key, so far, for institutions."
Gazebo's model provides users with two lists of stocks for each issue: a bear and a bull list, each containing 20 equities. Some of the portfolios track such commodities as gold and natural gas. Others follow short-term and long-term interest rates, or a variety of national and international indexes. The system can also track widely held stocks, such as AOL Time Warner, or market sectors, biotech and retail among them.
In a partnership with Associated Press, the service also furnishes subscribers with news. There are about 25 indicators now, but the company expects to expand that significantly in the coming months.
A statistical model tracks a variety of market signals and macroeconomic metrics, such as oil prices, the fall and the rise the Dow and Nasdaq, interest rates, housing starts and benchmark stocks.
Gazebo's so-called issue-based investing (IBI) bear portfolios, on average, have returned 13% through the first six months of 2002, while the S&P has fallen 15%, according to the company.
Conner said that if an investor or manager is looking to short, this tool could help them. Even those who are not allowed to short can still bet against the market without breaking the bylaws of a fund, she said.
"There is a big controversy about how much shorting can be done in a mutual fund [see MMFN 8/26/02]. A portfolio manager [thinking] we were going to go to war with Iraq, could go bullish on oil and bearish on the Nasdaq," Conner said.
Top of the Charts
Are you a bear or a bull on Microsoft? Depending on your answer, this service claims it can help you build a tailored portfolio based on your beliefs, whether or not you plan on investing even a single cent on the software giant.
One of Gazebo's indicators is Bill Gates' brainchild. If you were bullish on Microsoft, last week, semiconductor company Qlogic, Internet portal Yahoo and storage networking equipment maker Emulex would have been your best bets, according to the service.
On the flip side, companies dealing with gold and healthcare were those predicted as logical winners if Microsoft does not fare well. Non-urban hospital operator Province Healthcare, and miners Harmony Gold Mining, and Newmont Mining were atop the Microsoft bear list.
If you were a bull on short-term interest rates, biotech appeared the way to go, with Myriad Genetics, Protein Design Labs, and Human Genome Science topping the list. Bearish? It was a mixed bag.
Gazebo's model, run on a weekly basis, is well known in the institutional world and that BARRA uses the same model, but different software, according to Gazebo.
"Multi-factor analysis identifies and isolates market-driving risk and minimizes company specific noise. Our model picks out only the portion of a stock price that is driven specifically by a signal and ignores the rest of it," she said, adding that it is able to filter out stocks that appear to be moving up or down based on news, but are really not.
The service is currently available through one broke/dealer, but Gazebo is in the process of finding further distribution. It is also exploring a direct subscription model. The company charges $500 to $5,000 per user, depending on the number of users as well the number of issues or lists being tracked. Additionally, Gazebo said it can customize data for individual customers, as long as there are market-driving signals available to base the list upon. The lists are available via FTP, e-mail or over the Internet.