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SMALL STOCKS MAY FARE BETTER UNDER CLINTON

 SMALL STOCKS MAY FARE BETTER UNDER CLINTON
 BOSTON, Oct. 20 /PRNewswire/ -- Contrary to popular belief, small


stocks historically fare better under Democratic presidential terms, according to a study by Liberty Asset Management, a subsidiary of Liberty Financial Companies. The study conflicts with widely held beliefs that policies under Democrats imperil business and hurt stock prices, an assumption even used by President Bush in the first presidential debate when describing the market's reaction to a potential Clinton victory.
 Most studies of presidential impact on the markets focus on either the Dow Jones Industrial Index (30 large cap stocks) or the S&P 500 Index (500 stocks with a large capitalization bias). However, the Liberty Financial study focuses on the Ibbotson Small Stock Index, which is comprised of the smallest 100 stocks in the S&P 500, beginning in 1929 with the Republican Hoover administration through June 1992 during the Bush administration. The results show both better absolute and better relative returns for the small company stocks under the Democratic administration.
 "Frankly, the results were a surprise," said Kenneth R. Leibler, president of Liberty Financial Companies. "During our normal research on small stocks, we found a strong correlation between a positive market environment for small stocks under Democratic administrations and a less desirable environment for those same stocks under Republican administrations. While it is generally accepted that the Republicans are generally good for big business, the Democrats' focus on decreasing unemployment is strongly beneficial for small business." A recent Department of Labor study concluded that approximately 66 percent of all new jobs in the U.S. each year are created by small employers. Reagan and Bush vs. Carter
 Comparing the most recent Republican administrations (Reagan and Bush) with the last Democratic administration (Carter) illustrates the impact of politics on small stocks. Under the Republicans, the S&P 500 has generated an average annual increase of 15.1 percent (1981 to June 1992), but only an 11.8 percent annual increase in small stocks. However during Carter's administration, which is largely remembered as a weaker financial environment, the S&P was up 11.8 percent while small stocks were up 32.0 percent. Results By Political Party
 The study found than since 1929, Republican administrations have accompanied an annualized return of 1.7 percent for small stocks and 6.6 percent for the S&P 500. This compares to a gain of 22.5 percent for small stocks and 12.1 percent for the S&P under Democratic administrations. According to Harvey Hirschhorn, chief economist for Stein Roe & Farnham Incorporated, a subsidiary of Liberty Financial Companies, "The impact of presidential elections on small stocks has largely been overlooked. If this trend continues and Governor Clinton is elected, I would expect that small stock mutual funds and diversified mutual funds that have a significant small stock holding would be expected to do relatively well under a Clinton administration." Large Companies Do Better Under Republicans
 The Liberty Financial study also supported the general perception that large capitalization stocks do better under Republican administrations. In the seven Republican terms since the Depression (after 1937), the average annual return of the S&P 500 was 11.8 percent compared to 9.5 percent under the Democrats. According to Liberty Financial's Leibler, "The two most widely followed proxies for the stock market are the Dow Jones Industrial Average and the S&P 500. Both are heavily weighted with larger company stocks and historically have performed better under Republican administrations. There is a strong correlation between the political party in control of the White House and the size of the company that may benefit."
 Liberty Financial Companies is a widely diversified financial services organization with over $29 billion in assets under management. It operates several subsidiaries, including: Stein Roe & Farnham Incorporated; Keyport Life Insurance Company; Liberty Financial Bank Group, Liberty Securities; Liberty Asset Management Company; and Liberty Real Estate Group.
 STOCK MARKET RETURNS AND POLITICAL CYCLES STUDY OBSERVATIONS Background
 Studies have been made comparing stock market returns with political parties. However, they have focused on the general market, using either the Standard and Poor's 500 Stock Index (S&P 500) or the Dow Jones Industrial Average. Both of these indices are skewed towards large companies -- the first by using market capitalization (shares outstanding times market price) to determine a company's weight in the index; the second by using 30 large companies.
 The purpose of this study was to examine the performance of small- company stocks, both absolutely and relative to the S&P 500. The index used is the generally accepted Ibbotson Small Company Stock Index. The data available extend back through the beginning of Herbert Hoover's term. Results
 The results show both better absolute and better relative returns for small-company stocks under Democratic administrations. Also, small companies had poorer relative returns under Republican administrations.
 Importantly, the magnitude of the returns is large and the consistency of over-and-under performance is high.
 The results are given on the following three tables:
 Table 1 -- Working backwards in time, results and comments for each
 political cycle.
 Table 2 -- Annualized results for various periods.
 Table 3 -- Cumulative results for various periods.
 For copies of the above tables, please call William Rice at Liberty Financial and they will be faxed.
 -0- 10/20/92
 /CONTACT: William Rice at Liberty Financial, 617-722-0897/ CO: Liberty Financial ST: Massachusetts IN: FIN SU:


CH -- NE005 -- 2113 10/20/92 10:11 EDT
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Date:Oct 20, 1992
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