The Private Investor

'The stock market pendulum is just starting the swing back'

Fashion rules in stock markets. It does not seem all that long since the technology bubble burst. Huge corporations and private punters threw away fortunes on companies that would never repay our investment. As markets tumbled, values and reputations were wiped out and the battered "old economy" suddenly looked less risky.

Now the pendulum is swinging back. As the stock market has rallied, the techMARK 100 index has outperformed the FTSE 100 Share index by 62 per cent in five months. The likes of Gresham Computing, NXT and lastminute.com have been leading the charge. Some decidedly bull market-type ventures, such as risky-sounding internet data filterer Corpora, are lining up to tap the main market or alternative investment market.

Cinderellas remain. Aim-listed video telephony specialist Motion Media, which touched 280p in the boom, languishes at 11p, despite being chosen by Cisco, the US IT systems giant, as a partner in its architecture for voice, video and integrated data (Avvid) programme. Cisco likes Motion Media's versatile mm745 IP videophone, being tested by IBM, BT and others. This is seen as the future in desktop video communications, including Colin Blackbourne of broker Shore Capital who holds nearly 7 per cent. Motion Media had a £3.8m refinancing at 3.5p. A speculation on further recovery could be rewarding.

Spare cash for stock market flutters may have become an unaffordable luxury for the multitudes now aware of the likely inadequacy of their private pension and life insurance. One group taking a fresh approach to retirement is the fast-growing Pension Annuity Friendly Society. Pafs was founded in 1995 by broker Chris Rostron to use new, patented actuarial tables to offer better retirement terms for those with life-shortening conditions.

Now, with £275m under management and new capital from the HBOS group, PAFS has gone into long-term care. The British Legion is one affinity group which has agreed to promote its "flexible care account". For a single or monthly premium, policyholders can build fixed-interest investments, with insurance giant Swiss Re, on which they can draw for needs in early retirement, such as chair-lifts. There is a risk programme which pays out on a doctor's certificate if the policyholder goes into a nursing home for long-term care.

Mr Rostron has taken Pafs into South Africa, China and Romania and is tackling the US. It is Britain's seventh- largest friendly society and, with help from HBOS, Mr Rostron says he aims to build its funds to £3.5bn.

Other parts of the insurance sector are also looking lively. Lloyd's, scene of past catastrophes, losses and scandals, is still enjoying buoyant premiums, as insurance companies, especially in the US, wounded by 11 September and other disasters, have withdrawn underwriting capacity. With shares in some quoted Lloyd's groups, such as Hardy and Amlin, reflecting this surge, Lloyd's agent Hampden is offering limited liability participation in Lloyd's as "Namecos" to investors able to commit £400,000 to the market. This can be a bank's letter of credit, rather than cash or securities, and allows the investor to write up to £1m of insurance a year through syndicates usually chosen by Hampden.

A 10 per cent underwriting profit would yield a 25 per cent return, with a 20 per cent profit yielding 50 per cent, though there is an initial three-year wait, to allow for claims, and funds put up to back the underwriting also earn interest. There is an array of annual costs and Hampden takes a 12.5 per cent profit commission.

As with Pafs, looking after an ageing population will remain a priority. This is cheering for healthcare specialist Shiloh, which has a strong market presence in incontinence protection, medical equipment decontamination, mobility aids and related items.

The company has a good chance of winning a big slice of the £250m market in decontaminating used hospital surgical instruments being opened for bids by the National Health Service. With restructuring costs behind it and profits tipped to rise 50 per cent to £1.6m, Shiloh at 213.5p is looking for attractive acquisitions.

Robert Tyerman is news editor of 'Growth Company Investor'

Sean O'Grady is away